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WIKI ANALYSIS
Dover Corporation (NYSE: DOV) is best described as diverse. An industrial conglomerate that allows its four segments and thirty-two subsidiaries significant autonomy, Dover produces a variety of products, just a few of which are four-wheel-drive and all-wheel-drive power train systems, walk-in coolers, drill bit inserts for oil and gas exploration, and hearing aid components.[1] Dover's largest segment is Engineered Systems, which includes a wide range of products, from heating, cooling, and ventilation systems to product identification mechanisms used in markets where labeling is required (food, drugs, etc.).[2]
Dover operates primarily in the United States and has international subsidiaries primarily located in Western Europe, and it is becoming increasingly present in emerging markets.[3] Approximately 43.6% of Dover's revenue comes from abroad.[4] Dover's diversification across both industries and geographic borders makes it resilient and less affected by industry-specific issues. For example, despite the fact that Dover produces parts for American oil rigs, Dover's stock was not as adversely affected by the BP oil spill as were other oil-related companies'.[5]
The demand for many of Dover's products is sensitive to the state of the economy. As such, in 2009, Dover's revenue decreased 23.7% due to the decreased demand brought on by global economic slowdown;[6] however, as the economy improved in the first quarter of 2010, the firm's revenue and earnings improved by 14.8% from the same quarter in 2009.[7] Despite decreases in revenues and earnings in 2009, Dover still increased its dividend payments.[8] Dover prides itself on 55 years of steady dividends increases.[9]
Business Overview
Dover Corporation is involved in a number of industries ranging from construction to consumer electronics. Dover consists of four major segments with seven major product types. Each of these segments is allowed significant autonomy over its products and markets while being afforded the leverage of Dover's substantial resources for production.[10]
Dover's receives the largest fraction of its revenue (18.3%) from engineered products (a subsection of its Engineered Systems segment),[11] which include refrigeration, heating, and ventilation systems as well mechanical packaging systems.[2] The next largest revenue source is Dover's electronic technologies products,[11] which range from consumer electronics to micro acoustic components. In response to poor economic climates in 2009, Dover downsized, shifting away from lower margin operations by discontinuing seven operations and selling ten business while only acquiring six add-on businesses.[12]
Business Segmentation
Dover segments its business into the four following sections:
- Industrial Products (28% of revenue)—includes materials handling equipment, such as construction equipment, as well as mobile equipment such as power train systems, truck bodies, internal engine components, and aerospace components.[14] Industrial Products' revenue and earnings decreased 34% between 2008 and 2009 due to general economic slowdown; however, revenue improved in the fourth quarter of 2009.[11]
| Revenue, in thousands | 2009 | 2008 |
| Material Handling ($) | 660,353 | 1,136,869 |
| Mobile Equipment ($) | 962,177 | 1,323,422 |
- Engineered Systems (32% of revenue)—includes engineered products such as refrigerators, air and ventilation systems, and packaging machines, as well as product identification products such as marking and coding systems (i.e. bar codes, dates, and serial numbers).[14] Engineered Systems revenue decreased by 7% between 2008 and 2009 due to unfavorable market conditions and exchange rates.[11]
| Revenue, in thousands | 2009 | 2008 |
| Enginered Products ($) | 1,059,660 | 1,085,881 |
| Product Identification ($) | 802,276 | 924,469 |
- Fluid Management (22% of revenue)—includes energy production and distribution products such as gas well production control devices as well as fluid solution products such as suction system equipment, pumps, and chemical proportioning and dispensing systems.[14] Fluid Management revenue decreased by 26% between 2008 and 2009, a loss largely due to a decrease in energy demands and offset by an increase in active North American drilling rigs.[11]
| Revenue, in thousands | 2009 | 2008 |
| Energy ($) | 624,221 | 935,414 |
| Fluid Solutions ($) | 646,849 | 778,812 |
- Electronic Technologies (18% of revenue)—includes parts for consumer electronics, electromagnetic products, and assembly and testing equipment.[14] Electronic Technologies revenues decreased 26% between 2008 and 2009 primarily due to weak demand.
| Revenue by Region, in thousands | 2009 |
| United States | 3,257,152 |
| Europe | 1,078,308 |
| Other Americas | 463,176 |
| Total Asia | 791,292 |
| Other | 185,761 |
| Total | 5,775,689 |
Business and Financial Metrics
For the first quarter of 2010, Dover has reported a near doubling of net earnings ($121.5 million from $61.1 million) and a 14.8% increase in net revenues (to $1.6 billion) when compared to the same quarter in 2009.[15] Of the 14.8% increase in revenue, Dover's first 2010 quarterly report attributes 7.0% to organic growth, 5.1% to acquisitions made in 2009, and 2.7% to favorable foreign exchange rates.[7] Dover's growth in 2010 is largely attributable to increased demand as a result of improvements to economic conditions.[7] The opposite effect can be seen in the $1.8 billion dollar loss in revenue reported between 2008 and 2009. This substantial loss of revenue can be largely attributed to changes in the global economic climate between the two years.[6]
| Annual Financial Data, in thousands[6] | 2009 | 2008 | 2007 |
| Revenue | $5,775,689 | $7,568,888 | $7,317,270 |
| Gross Profit | $2,099,154 | $2,730,007 | $2,619,502 |
| Operating Earnings | $588,043 | $1,029,330 | $1,005,497 |
| Net Earnings | $356,438 | $590,831 | $661,080 |
It is noteworthy that Dover prides itself on providing its investors with consistent dividends, and as of 2010, Dover has provided its shareholders with 55 years of consecutive annual dividend increases.[9]
Trends and Forces
Dover Materials Handling Products Driven by Economic Growth
Dover's materials handling products, which are produced by its Industrial Products segment, are used in construction, an industry that does substantially better in expanding economies.[16] Thus, the demand for said products is sensitive to the growth of the economy. In 2009, Dover's materials handling revenue fell by 42%, largely due to decreased demand from global economic slowdown.[6] The value of construction started in 2009 was approximately 25% lower than in 2008.[17] However, McGraw-Hill forecasts improvements in 2010, especially in public works,[18] and the Construction Industry Confidence Index has increased to 41/100, up 7 points (20.5%) in the second quarter of 2010.[19] The increased confidence is the result of both general improvement in economic condition as well as the stimulus package, which allotted roughly $131 billion to construction-related spending, much of which is still being spent.[20] If the construction industry does improve as predicted, so should Dover's revenue from materials handling products.
Similar sensitivities to economic condition exist in Dover's Fluid Management and Electronic Technologies segments, and, to a lesser degree, Dover's Engineered Systems segment. Dover's 2009 10-k argues that the 26%, 26%, and 7% losses in revenue for the three segments, respectively, were largely due to weakened demand from a poor economy.[11] As such, Dover's first 2010 quarterly report attributes a large part of its 15%, 36%, 20% increases in revenue (Fluid Management, Electronic Technologies, and Engineered Systems, respectively) from the same quarter in 2009 to increases in demand from a recovering economy.[7]
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