Dover Corp (DOV) — Q1 2026 Earnings Call Transcript

Thank you, Clay. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through May 14, 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. We're off to a good start in 2026. Revenue grew double digits in the quarter, driven by continued strength in our secular growth-exposed end markets, acquired company performance and constructive demand conditions across the portfolio. Bookings were a key highlight in the quarter. First quarter bookings totaled $2.5 billion, up 24% year-over-year. Book-to-bill was healthy at 1.2 in the quarter with each of the five segments well above 1, providing improved visibility and confidence in our forecast. Our balance sheet remains strong and continues to provide flexibility for long-term value creation. During the quarter, we continued to return capital to shareholders through opportunistic share repurchases while also investing behind high-return capacity expansions and productivity projects. Our acquisition pipeline remains active as industrial M&A begins to pick up. As always, we will remain disciplined with a focus on maximizing value creation through strong financial returns and strategic fit. All in, adjusted EPS of $2.28 per share was up 11% year-over-year. While we are keeping a keen eye on the geopolitical machinations, and the possible impacts to the macro environment, we believe we are well positioned to drive value creation for our shareholders given the underlying strength of our order books, the flexibility of our business model and the operational execution of our teams and our opportunities for capital deployment. We remain committed to delivering double-digit adjusted EPS growth for the full year consistent with Dover's long-term performance trajectory. We have chosen to reaffirm full guidance for the year for the time being. But clearly, based on order rates, we are driving to the top end of the range. We will revisit guidance next quarter. Let's go to Slide 5. Engineered Products revenue increased modestly in the quarter supported by strong underlying demand and healthy bookings in aerospace and defense components and industrial winches, along with improving trends in the global vehicle aftermarket business. Clean Energy and Fueling grew 11% organically led by strong shipments in new orders and clean energy components, fluid transport and retail fueling. We continue to see aggressive build-outs from national retailers in North America, which we believe is still in the early innings of a multiyear growth cycle and we are also seeing healthy improvement in Europe as well. Margin performance was driven by volume leverage and operational execution with recent pricing actions expected to further bolster margin performance over the balance of the year. Imaging & Identification delivered stable performance across core marking and coding equipment, consumables and in serialization software. Segment margins remained strong with some foreign currency translation headwinds in the quarter that should abate as the year progresses. Revenue in Pumps and Process Solutions declined modestly in the quarter as solid performance in artificial intelligence, energy infrastructure components and industrial pumps allowed us to lap a tough comp in biopharma. Segment margins expanded on favorable mix and strong productivity execution. Climate and Sustainability Technologies was a standout during the quarter, delivering 15% organic growth. Heat exchangers performed especially well across all regions, particularly in North America on the growth in liquid cooling applications and data centers. Food retail also delivered solid top-line performance supported by continued double-digit growth in CO2 refrigeration systems together with the recovery in refrigerated door cases and services as forecast. Demand remains strong and the order book supports our confidence in the full year outlook as we are already booking into the second half. Margins were up in the quarter on volume leverage and a higher mix of CO2 systems and heat exchangers. I'll pass it to Chris here.

Thanks, Rich. Good morning, everyone. Let's go to our cash flow statement on Slide 6. Our free cash flow in the quarter was $131 million or 6% of revenue. This was a $22 million increase when compared to the first quarter of last year as cash conversion on higher year-over-year earnings was partially offset by higher capital expenditures tied to growth and productivity investments. Our full year capital expenditure estimate remains at $190 million to $210 million. Consistent with prior quarters, we expect Q1 to be our lowest cash flow quarter of the year as our operating businesses make investments in inventory ahead of seasonally stronger volume quarters in Q2 and Q3. Our guidance for 2026 free cash flow remains on track at 14% to 16% of revenue. With that, let me turn it back to Rich.

Thanks, Chris. I'm on Slide 7. Bookings momentum continued to build in the first quarter. Bookings are up 12% over the last 12 months, reflecting broad-based acceleration across most end markets. Importantly, trailing 12-month book-to-bill is now above 1, providing further visibility and confidence in the growth outlook. The acceleration in bookings and demand is driving longer lead times in certain growth markets. We are seeing this most clearly in program-specific orders for aerospace and defense components and longer-cycle components for steam and gas turbines and engines, and in retail refrigeration CO2 systems and in heat exchangers as customers work to secure supply of critical components for fast-growing applications such as liquid cooling applications. Turning to Slide 8. We highlight several key end markets that are material drivers of our revenue growth in 2026 and beyond. We expect to generate over $1 billion in revenue from applications tied to artificial intelligence and power generation infrastructure this year. In data centers, increasing density of thermal requirements are necessitating a shift towards liquid cooling, which directly benefits our connector and heat exchanger businesses. Our SIKORA acquisition, which closed in June of 2025, expands our exposure to electricity infrastructure through measurement and inspection control solutions for high-voltage polymer-coated wires and cables, a direct beneficiary of growing electrification trends and demand from customers for product quality assurance and improvement. SIKORA is performing well ahead of its acquisition underwriting case. We are actively working to expand its geographic offering through our global channels and relationships. Natural gas remains the most visible option for scalable, reliable energy to meet the growing demands for electricity. Our Precision Components business provides bearing seals and compressor components for gas and steam turbines, engines and midstream natural gas infrastructure. Demand for steam and gas turbine components remains robust, a reflection of OEM lead times that now extend multiple years. While we have not seen a corresponding acceleration in midstream investment necessary to transport the gas to those turbines, early customer indications suggest a pickup in shorter-cycle orders for midstream compression beginning in the second half of this year into early next year. Our clean energy components business continues to build to see solid growth in valves and vacuum-jacketed piping used in LNG liquefaction infrastructure, including export terminals. We are also seeing strong demand in space launch-related applications, which recently booked its single largest order ever for space launch infrastructure where growth rates remain firmly in double digits. And biopharma customers continue to invest behind new therapies and increasing production rates, driving long-term growth for our single-use connector pump and flow meter solutions. Finally, in CO2 refrigeration, we maintain a clear market leadership position in the U.S. supported by a fully platformed product portfolio from our retrofitted plants in Condas, Georgia that provides strong competitive moats and product performance, lead times and scalability. The shift to natural refrigerants has transitioned from a regulatory-mandated demand to performance- and productivity-driven adoption as early installs have proven that the technology delivers improved operating performance versus legacy technologies. Despite the strong growth we've experienced, North America remains in its early adoption of natural refrigerants with penetration still below 10%. Let's go to Slide 9. Our organic investments remain our highest priority for capital deployment. Here, we highlight several of the most meaningful high-return capital projects planned for 2026. We continue to invest where demand visibility and returns are strongest while maintaining discipline around productivity and cost optimization. We also outlined a number of ongoing fixed cost reduction and facility consolidation initiatives. In aggregate, these actions are expected to generate more than $40 million of rightsizing savings in 2026 with incremental carryover benefits into 2027. The precise timing of these savings will depend on where we're able to finalize certain facility moves as we balance site consolidation with underlying demand trends in certain growth markets. Let's go to Slide 10. In Engineered Products, we expect low single-digit organic growth for the year, driven primarily by aerospace and defense, which continues to experience significant demand strength tied to electronic warfare and signal intelligence solutions. We expect to see further stabilization of vehicle aftermarket businesses supported by recent booking trends. Clean Energy and Fueling is expected to deliver broad-based organic growth across clean energy components, fluid transport and retail fueling and retail fueling domestic demand from national customers remains strong. We believe that this is a multiyear cycle. Our greenfield facility expansion and below-ground retail fueling is expected to support this growth cycle, particularly in our fiber-like composite solutions business which is seeing accelerating adoption globally, including increased specification and data-center-related infrastructure applications from hyperscalers. We expect margin improvement in Clean Energy and Fueling for the year on volume leverage, acquisition integration and productivity initiatives and positive price versus cost dynamics. Imaging and ID should deliver low single-digit growth driven by serialization software and marking and coding hardware and consumables supported by strong order rates. Pumps and Process Solutions should benefit from growth in industrial pumps, single-use biopharma components, precision measurement solutions for electrification infrastructure and critical components for steam and gas turbine engines and midstream compression. We also expect gradual improvement in our core polymer processing equipment supported by improved quoting activity. Finally, we expect Climate and Sustainability Technologies to deliver double-digit organic growth for 2026 driven by continued strength in CO2 refrigeration systems and the anticipated recovery in refrigerated door cases and engineering services as national retailers are reengaging in maintenance and replacement activity following a period of tariff-related delays, supporting a rebound from historically low volume levels in the previous year. We expect the robust demand across all geographies for brazed plate heat exchangers to continue over the balance of the year with particular strength in North America tied to liquid cooling of data centers and other HVAC applications. Lead times for large and extra-large heat exchangers have extended materially with additional capacity coming online as the year progresses. We have a margin opportunity here from volume leverage and the fact that we are carrying redundant fixed cost in refrigeration as we complete our facility consolidation. Let's go to Slide 11. Full year guidance is on the left. We expect 2026 seasonality to be consistent with recent years. The operating environment still has a share of macro noise, whether it's politics, input costs or policy-related uncertainty. That said, the demand signals we're seeing across the portfolio remain constructive and provide a level of visibility that supports our outlook. We are staying disciplined in our operations in our response to demand conditions. We are investing behind the platforms where returns are most compelling and we have the balance sheet flexibility to opportunistically play offense with capital deployment to create long-term value for our shareholders. With that, I'll pass it to Q&A. Jack?

Thanks — I think you got through an hour's worth of prepared remarks in about 15 minutes, well done. I just want to clear up the obvious question. This is a record order quarter. Anything unusual in the supply chain or of concern that people are getting ahead of potential concerns around the Middle East, et cetera? And have you seen the strength continue into April?

No, we don't see any kind of prebuy. What we put in the comments about longer lead times is that customers are ordering for later delivery periods than normal, just because demand is outstripping supply at the end of the day. That's really what's driving it up, especially in brazed plate heat exchangers, CO2 systems and refrigeration cases. You can see that in the portfolio. Overall, we don't see anything based on changes in tariffs or anything like that. It's just that the demand is there, and customers recognize that they need to get in line if they want deliveries because of capacity constraints.

Okay. That's great. And my follow-up on the tariffs: you mentioned tariffs, and there's a lot of inflation coming through on some of the base metals and steel. Maybe just talk about some of the countermeasures to that? And just clarify how the different tariff landscape is impacting Dover.

With the diversification of the portfolio, we've been trying to run down literally tens of thousands of line items of input costs and the like. I won't bore you with the details other than the fact that it kind of comes out relatively neutral at the end of the day. So everything that we are planning on based on the last round of tariffs — with these changes, we kind of go 360 degrees and come out in the same spot. There will be pockets where it may be detrimental, and there will be pockets where it's potentially a strategic advantage because we are mostly a build-in-the-region-to-ship-into-the-region kind of company. So net-net, after thousands of man-hours of work, it's solved nothing here.

Maybe a different angle on Section 232. You are largely a domestic manufacturer. Will the change to Section 232 tariffs provide any competitive advantage versus importers of finished goods?

I hope so. It's hard to tell; this is all new news. Like we saw the last time a year ago, it takes four to six months for these changes to work their way through because of inventory and other dynamics. I'm not going to talk about where we think we may have a strategic advantage; we'd just rather take advantage of it. But clearly, just like the last time we went through this, having relatively short supply chains has proven to be helpful.

And I can't resist. I'll ask this question: organic growth is 5%, bookings in the mid-20s and you're guiding 3% to 5% organic growth. The comps don't get tough until Q4. It seems a conservative guide.

I know. If you remember, Andrew, we actually got questions about our guide when we initiated it. I think if you go back and read the transcript, I was pretty explicit that we were driving clearly to the top end of the guide. We're 90 days into this — well, what are we now, 120 days into it or whatever. If bookings trends remain consistent through Q2, it's clear that we're going to have to revisit top-line expectations.

And April bookings seem to be fine.

Yes. So far so good.

Rich, maybe in terms of that comment on Nigel's question around the demand being there: trying to understand the triggers behind the demand because it's very broad-based when we look at the order strength. What has shifted in customer sentiment or what are you seeing out there around confidence to order right now? It sounds like that has persisted even through the geopolitical situation now.

When we gave our guidance for the year, we basically targeted both the Clean Energy and Climate segments as the two segments that were going to drive growth going into 2026, and here we are in Q1. They are driving the top-line growth and they have the best order rates in terms of bookings. So in a way we knew it was coming and there was a reason for it. I don't want to rehash the whole issue of what we went through for a couple of years on underinvestment in both retail fueling and refrigeration, and what we had to overcome last year. There's a secular story of the CapEx cycle swinging in those particular markets. The balance of it is generally either acquisitions or the growth platforms, and that is widespread across the portfolio with the exception of DII. It's a combination of a lot of things, whether it's a secular growth driver and a lot of investments we've made in capacity expansions and new product introductions over the last couple of years. Knockwood, they are gaining pretty good traction in the marketplace.

Shifting to M&A: you sounded constructive on the pipeline. Confidence in getting something done this year? Multiples don't look like they are moving any lower, and you have a track record of discipline. How are you navigating that dynamic?

Multiples are frustratingly high for sure. But we've got a variety of different balls in the air. The good news is there's more product available because equity markets are performing well and multiples paid are pretty high. That generally is a precursor to product becoming available. Can we find stuff that we like? Hope so. We've got a couple of proprietary things going on. So we'll see. It's better than it's been over the last couple of years, just in terms of the total environment.

I'll ask both my questions in one shot. First, you saw the long-cycle orders roll through appropriately. Are you seeing any improvement sequentially as you work through the quarter into April on the short-cycle order side of things? Did it mirror the trajectory, at least for long-cycle orders? Second, on the long-cycle orders, can you talk to how you think that plays out in terms of conversion to revenue, what it means for sequentials or first half, second half weighting as you work through the year?

The pace of the orders remained relatively consistent from Q4 into Q1. Let's not get confused between long-cycle orders and longer-cycle capital goods demand. What we're seeing is a phenomenon where reasonably short-cycle orders are being booked to reserve capacity. That's why you see the order rates what they are. If you looked at expected delivery times, you'd see orders well into Q2 and Q3 in certain businesses that we wouldn't normally see. That's because there's a demand-supply constraint there. Over time, we expect those orders to build; we have them, and then we'll normalize as we ramp up production to meet that demand. The good news is we have the orders and the pace of that rate sustained itself throughout Q1 and has sustained through April. It's not as if the polymer processing and can-making equipment with really long lead times are what's driving the order rate in the backlog.

Rich, maybe picking up on that then: the supply constraints you're talking about — are they Dover internal constraints or supply-chain input constraints? I think I get it that you've been waiting for growth and probably kept tight control of investment when it wasn't growing. Am I right?

Jeff, it's not that we haven't had constraints. When you're booking the way we're booking and trying to ramp, it has cost us margin dollars in Q1 trying to ramp up. But it's more that certain data-center projects and some markets have very few competitors, which is the beauty of the business model. So customers order in advance to reserve capacity. That's the same thing for a lot of the markets we participate in. We would never ramp capacity to meet all of the orders as if we could get everything out in Q1; the funnel is the funnel. We have ramped for sure, but the funnel is the funnel and we're working with customers saying, 'We're sold out in Q2; you have to start ordering for Q3.'

That sounds like you ramped down and now are ramping back up.

No. We've never taken plants out of the markets we wish to participate in over the long term. We've been good at cost management, but it's not like we've taken production capacity out in those markets. The consolidations have been about efficiency. We're not fully taking out production capacity in the markets we plan to serve long term.

On DPS, you mentioned you overcame tough comps. Are you seeing business gas compression picking up? Your business is gas turbines-focused; what's the outlook for the overall business? I would imagine maybe slightly stronger versus last quarter, but tell me.

We were transparent even in Q1 last year that we had a great Q1 that was going to set this up. We're pleased with the performance of the segment, particularly in terms of margin performance despite tough comps. Not only was it a tough top-line comp, it was a tough margin comparison too. We did a great job in margin preservation despite a tough top-line. For the balance of the year, we've been doing really well on the turbine side for some time now and that should continue. The upside to the performance of that segment in the second half would be in compression, if orders for compression materialize; we'll know when we get the orders.

And on DII, you're still talking about low single-digit organic growth and margin expansion for the year. Any additional color on what happened in Q1 there?

We don't have a lot of angst about 30 basis points of margin compression. That's essentially a rounding error and it's FX — our most global business has a ton of FX running through it. We're not worried at all. It's not a negative; the business will do what it does every year: deliver single-digit top-line growth, healthy margins and a ton of cash.

Rich, regarding Engineered Products, nice to see the business return to growth and book-to-bill was strong. You have a decent defense business there that's quite relevant in today's geopolitical environment. Can you talk about the growth you're seeing — is it specific to defense or more broad-based? And with the book-to-bill, can you accelerate from here and do you have enough capacity to meet that opportunity?

It is driven by the defense business in the segment right now, but the industrial winch side is doing quite well too. The vehicle service headwind in Europe has abated. The management team is doing a good job on margin performance. On the defense side, long lead times are a factor — we're working hard to increase production capacity in aerospace and defense, but you can't just throw money at it; it takes time. It's doing really well, and if we can get a bit more production capacity online, we'll be able to sell into it as we march through the balance of the year.

Follow-up: you mentioned tariffs and Section 232 earlier. Some competitors manufacture disproportionately in Mexico and have historically been stubborn on cutting prices. Are you seeing any competitive behavior that gives you an umbrella or opportunity for share in those markets? Anything to offer after April 6 would be helpful.

History suggests those competitors won't give up market share and will often absorb price. Our success is more predicated on significant investments we've made in our own production processes, enabling best-in-class product lead times. We don't have to go grab market share on price; we can do it on lead times. That's the strategy, and it seems to be working so far.

How are you thinking about the TAM for both CO2 systems and liquid cooling? CO2 systems are still way underpenetrated relative to Europe and liquid cooling is growing quickly. What is the opportunity for you guys?

We can give a more intelligent answer about CO2 systems than liquid cooling. For CO2 systems, as we noted, North America is roughly 10% penetrated when you look at installed base conversion. That leaves plenty of opportunity. The installed base could convert more rapidly if customers choose to do so. The beauty is if we stay in front on product performance and capacity, we can run this over a multiyear period. As for liquid cooling, it's clearly growing; if you try to install the capacity implied by some TAM estimates, there would never be enough capacity in the marketplace. We're trying to roll out capacity in line with the demand curve based on our customer interactions.

Follow-up on capacity: you're expecting incremental margins to inflect in the second half of the year in DCST. How much capacity do you have available — is it multiyear capacity? Do you have enough through the end of next year?

When we're adding capacity, it's generally based on a three-year forecast. The CapEx we spent 18 months ago is now productive capacity. Where we're adding is generally for '27 demand at this point. So as a rule, when we're adding capacity it's not generally intra-year. We think we've got it right and are rolling out capacity based on the demand curve.

You said the pace of bookings was steady in the last several months, but you had very good bookings growth driven by customers placing orders with longer lead times because of supply concerns. Is that view based on customer conversations that they're not placing orders ahead of price increases? Also, you didn't see a spike around when Iran started. Help put some of those things together.

For the most part, our pricing was done at the beginning of the year and announced. There may be exceptions, but the vast majority of pricing is out there now. We did not see any kind of spike around geopolitical events. The pacing into Q4 rolled right through Q1, particularly in the segments where we expected growth. You're communicating with customers about product lead times and they're beginning to stretch orders because capacity is being utilized. I don't foresee anything odd — it was more secular growth in areas we bet on that came through. The one surprise was DPS margin performance given the tough mix comp. Demand in retail refrigeration was stronger than we expected and required keeping a plant open longer than we wanted, which has been a bit dilutive to margin conversion. We'll get the fixed costs out but it might take a quarter longer than expected. In the Climate segment, brazed plate heat exchangers are capital intensive and incremental margin flips over on depreciation as volume grows; once we've removed redundant refrigeration fixed costs via consolidation, incremental margin should inflect positively.

That's helpful. You had 10% revenue growth and EBITDA margins up a few basis points. Any other items across the segments that help operating leverage improve later in the year?

I would think the retail fueling business will inflect sequentially positive throughout the year on volume leverage and product mix. We would expect this to be one of the lower margin quarters due to seasonality; if everything goes as planned, you'll see volume leverage in bookings and growth drive margins higher as the year progresses. DPS, if we can stay where we are, we'll be pleased.

Historically, first-quarter orders convert at a similar level into second-quarter sales. How should we think about the $2.5 billion in orders versus the $2.2 billion in sales that consensus has for Q2? Also, can you quantify what portion of the $2.5 billion were longer-dated orders?

You can do the math and stuff orders into Q2 and get a pretty big revenue growth number, but I would advise caution. That's why we discussed longer-dated orders — from a capacity point of view, it's not realistic to stuff all of Q1 bookings into Q2. We are booking in certain businesses into Q3 now. We'll get as much as possible into Q2, but let's not get ahead of ourselves on revenue growth for Q2.

Can you quantify — is it $100 million or $200 million of longer-dated bookings?

Patrick, we're not going there.

On price expectations for the year given commodity cost inflation, do you still expect to be in the 1.5% to 2% range?

Right now it's a moving target and we'll see what happens with input costs and metals. But given inventory and timing, even if costs change, you won't see all of that in the back half of next year because we have inventory coverage.

Okay. So that guidance is unchanged for price then?

If you want to give us price guidance, sure.

Following up on the price commentary: earlier you said maybe there is more price coming into Q2 to combat cost inflation. Did you put more price in place since the start of the year in response to cost inflation?

Anecdotally, I'm sure we did, but the vast majority of the pricing we put out started at the beginning of the quarter.

And on Q2, is the expectation that Q2 is still in this roughly 10% EPS growth and mid-single-digit organic growth range?

I haven't done the math here on Q2 specifically. I know that we're driving towards over 10% EPS growth for the full year. Seasonality says our profits are generally highest in Q2 and Q3, and I'll leave it to you to do the math.