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Analyst Presentation - June, 1997
Scroll down for slides 2
through 13
Slide 1 of 13
Slide 2 of 13
Notes:
- Internally we report 47 standalone Dover Companies.
Bottoms up can count 90, without getting into
profit centers that share manufacturing or
marketing.
- We trust our Presidents to run their businesses - labor
contracts, pricing, R&D, information systems,
personnel, benefits, accounting . . . In return we get
truly able business people who emotionally
own their businesses.
- We CHOOSE to own such companies because we feel
comfortable in monitoring (not guiding) their performance
and in selecting new Presidents when necessary.
Presidents rarely leave Dover for other jobs: they
retire; they take on a different Dover company (filling
and creating a vacancy simultaneously); they die;
and, sometimes they dont measure up and are
replaced.
- We want to dominate -- not monopolize, because everyone
needs competition -- niche markets. Thats where the
best money is. But one cant OWN market share. We
earn it day-by-day through providing the best value to
customers.
- A quick run through our 47 or 90, or whatever, number of
companies would turn up literally thousand of programs--
constantly changing, and called by different names--but
all intended to improve tomorrow what was done yesterday.
The general heading is Continuous
Improvement. It covers procurement, service,
quality, cost, product innovation, business processes,
channels of distribution -- all things that are NEVER
good enough. If we do this faster, better
than our competition, then you shareholders are going to
make money.
Slide 3 of 13
Notes:
|
Sometimes one is better defined by who
your enemies are, rather than by who your friends are. |
- We are not impressed with SIZE. But we do like growth.
- We have a powerful culture
in part because we
DONT have a lot of policies and procedures dumped
on our Presidents from on-high.
- This is a diversified company. If everyone is doing
something the same way, maybe we are missing something
better
or losing autonomy.
- Empowering people and setting up a committee to decide
are usually competing ideas. We like clear lines of
authority
and accountability.
- As part of a compensation planning project some years
ago, a consultant interviewed a large number of of Dover
Presidents. To further his understanding of our culture
he asked them: Of all the reasons for possibly
losing your job at Dover which one seem clearest to
you. The answer, overwhelmingly, was Not
being Truthful
- Dovers culture is about People and Trust. Always
has been. Always will be.
Slide 4 of 13
Notes:
- Growing with your niche is the FIRST order of business.
It requires focus on customers and continuous
improvement. It is the easiest thing to monitor and
something Dover Companies do very well. But, we have only
a few businesses where we can grow double-digits from
this effort alone.
- In 1990 we began a tilt toward growth. The
message is that JUST accomplishing the first order of
business is not enough. There must be a Plan
company by company
to grow beyond this. People are
expected to TRY
by challenging themselves to lead
with 60% of the market rather the 40%; by developing new
products or markets that fit, and by making
add-on acquisitions if they can find them. We have done
over 30 Add-Ons in the last 4 years
including 5, so far, this year.
- Except in the context of a large add-on acquisition,
virtually all of our companies generate cash in excess of
their needs. This is a consequence of the general pattern
of 50% pretax return on net operating assets and 10%, or
less, internal growth.
- Free cash flow in Dover, after dividends, runs about 6%
of sales. We prefer using it to acquire NEW growth
platforms, but we are prepared to use it to increase the
existing growth platform PER SHARE, by repurchasing our
stock.
Slide 5 of 13
Notes:
- N.T.S. means NOT TOO SHABBY.
- Chart shows EPS growing from $.61 to $3.01over the past
10 years
roughly 5-fold or about 17% per year.
Thats a very good result for our kind of markets,
business risks, and strategy. In 2006 I expect to still
be CEO. $15 per share would sure be nice, but I would
hope to keep my job if it only looks to be 12.
- Incidentally Dover feels it earned $3.01 last year --
$3.45 actual less $.44 from selling two businesses.
Almost everyone else has his/her own number ranging from
$2.87 to $3.01 with a mean of $2.94. Thats almost a
+ 2% spread on ACTUALS.
- This is trend of Earnings Before Interest, Taxes, and
Acquisition-related write-offs per share (EBITAPS). It
shows the impact of purchasing BOTH kinds of growth
platforms, external and internal. Note the reduction in
the share base from 139 to 113. Your forecasts for 1998
(of $3.60 EPS), or so, imply EBITAPS of about $6.25 per
share next year compared to the $5.21 of 1996.
Slide 6 of 13
Slide 7 of 13
Notes:
- All of the above still true.
- Universals April-May orders are not quite as strong
as in Q1, but 25% above last year. Expecting a Q2
book-to-bill closer to 1.0 after 1.5 in Q1
but for
the right reason. Shipments up sharply.
- Imaje planned a 1997 that would look much like 1996. They
are a bit behind this at the moment -- measured in FF --
but over 15% down measured in US $. Europe is about 50%
of shipments and is slow. Americas are 20%, and up
sharply. Asia is 30%, also up nicely. Focus is on our
share gains in the U.S. and keeping up in Asia where
market growth is strong but competition is intensifying .
- ECT is doing better operationally than they had planned
last fall when we bought them. Nice contribution to Q2
earnings. Lots going on - absorbing BSL and moving
production to California, Co-ordination of tester
business with Luther & Maelzer. Actually capacity
constrained for probe production.
- Component companies continue ahead. Now largely
commercial. Helped by modest renewed growth in
communication equipment.
- Customer feedback in the electronic production equipment
markets, where Dover Technologies has made 60% of its
profits so far this year, continues positive. BUT very
close-in; not much visibility beyond the next few months.
Not sure if this is the start , or a false start, of the
next cyclical upswing.
Slide 8 of 13
Notes:
- Profits have improved every month this year and exceeded
prior year for the first time in May--despite not having
Dieterichs earnings this year.
- April-May orders, excluding Dieterich, up about 15% from
1996 levels.
- Seeing modest year-over-year improvements in solid waste
markets now after a poor Q1. Combined orders for Heil
Refuse and Marathon are even with 1996 y-t-d and ahead in
April-May. These companies made 64% of their 1996 profits
in the 1H and 36% in 2H.
- Heil Trailer orders are running 20% above last year.
Profits in April-May were ahead of prior year. Their
book-to-bill in 1997 so far is .98. Last year Heil
Trailer profits split 63% in 1H and 37% in 2H.
- Groen is 20% ahead of last year in shipments and much
more in profits - already. Last year Groen made OVER 100%
of its profits in 1H. Write-offs and operational
changes created a Q4 loss.
- Texas Hydraulics continues to do exceptionally well with
sales and profits up over 20% and y-t-d book-to-bill of
1.3. Hydraulic cylinders seem to be a commodity type
business everywhere but here where they have become a
fast, problem-solving, engineering oriented company with
great outcomes for their customers as well as for
themselves.
Slide 9 of 13
Notes:
- The stiff challenge is coming from the earnings decline
at Belvac, which we first began talking about a year ago.
The boom in can-necker sales ended in 1995
leaving Belvac with a big backlog. Record sales and
earnings were achieved in 1996 but the book-to-bill was
only .46. Profits in the 1H of 1997 will be down about
$20 million from last year.
- Good news at Belvac is that 5 month orders are 25% above
last year with book-to-bill over 1.0. By the 4th Quarter
we expect Belvac profits to have stabilized -- at a very
profitable level -- and probably with FAVORABLE
comparisons going forward.
- After 5 months these not yets arent
nows
but they are closers
- Hill is making operating progress and has a 5 month
book-to-bill of 1.27. This bodes well for this
years 2H earnings.
- Mark Andy profits are much improved form 1996 . . . along
with orders, book-to-bill, and backlog. They are in the
process of introducing new products with high potential.
- Pathway has landed a big aerospace auto-clave order for
TEC, and made an add-on acquisition in Germany.
- The growth elsewhere is happening
These
four companies earnings are up over 10% through
May. However backlogs are lower at A-C (strong $) and
Sargent (timing of submarine program orders).
- Comparisons for Diversified do get easier in 2H
especially Q4
but an up year remains a stiff
challenge.
Slide 10 of 13
Notes:
- We did see positive momentum in Q1 with margins rising 80
basis points to 11.3% and sales up 4%
together
putting profit up 10%
- Our factory operation has shipped 6% more products than
last year, but with 7% fewer people.
- Y-T-D bookings up almost 30% from last year with gains in
both Hydraulic and Traction products. This relates ONLY
to the New Elevator half of our business where margins
are low. In the short term, volume gains, and margin
change work the opposite way in Elevator compared to our
other business segments.
- Asian bookings are up sharply. We now have a 2
drops-in-the-bucket market share.
Slide 11 of 13
Notes:
- Q1 was down 4% due to Midland (rail tank car cycle) and
about $1 million less growth than we expected elsewhere.
- Q2 will set earnings record (old record $28 million in
1996 Q1)
- Tulsa Winch (12/96) and Hydro Systems (1/97) will add to
earnings beginning in Q2 and for the years as a whole.
Together, their annual sales are only about $35 million
and there are acquisition write-offs; so, the earnings
plus is small.
- Now seems unlikely that ONLY Midland will have an
earnings decline in 1997 De-Sta-Co Manufacturing is
seeing softness in the automotive market. OPW Fueling
Components is still showing negative comparisons in its
vapor recovery product lines.
- Better than expected performance so far at Cook (pay off
on investments) and at Norris Sucker Rods and AOT (oil
patch)
- Double-digit growth requires at least an $11 million gain
for the year. This is not unreasonable, but we are a bit
less confident than we were in January.
Slide 12 of 13
Notes:
- Segment earnings in 1996 were $562 million
- They were down in Q1 with EPS up because of some items
that were unusual for a single quarter but not unusual in
the context of a full year.
- Segment profits will be ahead in Q2 as will EPS. I DO NOT
KNOW BY HOW MUCH.
- The last column shows our guesses for the full year.
UP-UP means double digit. Above this category are GREAT
and WOW. Universal in 1995 and Elevator in 1996 were
WOW.
- Dovers full year will be at least an UP. There is a
possibility for UP-UP. GREAT is highly
unlikely and WOW is what we expect
cumulatively over long periods, not single years.
Slide 13 of 13
Notes:
- By now you could write this chart yourselves.
- If we focus on our customers, give people autonomy, set
high standards, and continuously improve
we will do
better than most companies and generate lots of free cash
flow.
- Investing this cash wisely in growth platforms
external and internal
will make us very good
investments, indeed.
- When I became President of Dover, I challenged people to
work hard toward being simply the best. It
is, in fact, more a vision than a goal; more a journey
than a destination.

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Last modified: June 30, 1997