道爾 (DOV) 2009 Q2 法說會逐字稿

Good morning and welcome to the second-quarter 2009 Dover Corporation earnings conference call. With us today are Bob Livingston, President and Chief Executive Officer of Dover Corporation; Rob Kuhbach, Vice President and Chief Financial Officer of Dover Corporation; Brad Cerepak, Vice President of Finance of Dover Corporation; and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation.

(Operator Instructions). As a reminder, ladies and gentlemen, this conference call is being recorded. Your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would know like to turn the call over to Mr. Paul Goldberg.

Good morning and welcome to Dover's second-quarter earnings call. With me today are Bob Livingston, Dover's President and Chief Executive Officer; Rob Kuhbach, our CFO; and Brad Cerepak, our Vice President of Finance.

Today's call will begin with some comments from Bob and Rob on Dover's second-quarter operating and financial performance and outlook. We will then open the call up to questions. In the interest of time we kindly ask that you limit yourself to one question with a follow-up.

Please note that our current earnings release and investor supplement and associated presentation can be found on our website, www.DoverCorporation.com. This call will be available for playback through 11 PM July 24, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-642-1687. When accessing the playback you will need to supply the following reservation code, 18160188.

Before we get started I would like to remind everyone today that our comments, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.

We also undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.

We would also direct you to our website where considerably more information can be found. With that, I would like to turn the call over to Bob.

Good morning everyone and thank you for joining us for this morning's conference call. I am pleased to be here and report on our business trends and our second-quarter results.

Before I get into the numbers I want to give you a sense of the economic environment and our expectations going forward. Though second-quarter trends unfolded much the way we thought they would, our anticipated seasonal pickup was less than expected. We did, however, see order rates stabilize across the majority of our platforms, and even accelerate through the quarter in Product ID, Refrigeration, Energy and Electronic Assembly.

While we are comfortable that our markets, generally speaking, will not get worse in the back half of the year, we do not believe they will meaningfully improve either. We are working on the assumption that third-quarter volume and revenue will modestly improve from the second-quarter and then seasonally adjust in the fourth-quarter.

Today Dover reported second-quarter earnings per share from continuing operations of $0.54, down 45% from last year. Second-quarter revenue was $1.4 billion, down 31% from last year. And net earnings from continuing operations were $101 million, down 46%. Dover's 31% quarterly revenue decline was the result of a 29% decline in core revenue, coupled with a 3% negative impact of FX and a 1% gain from net acquisitions.

Consistent with the first-quarter, revenue declines in Europe, Asia, and the rest of the world were generally more severe than in North America, which was down 25%.

Bookings for the quarter were $1.4 billion, down 32% over the prior year, but showed a positive sequential trend in all segments and platforms except energy. Our book-to-bill ratio was 0.99 for the quarter, fairly consistent across all segments and a meaningful improvement from the first-quarter rate of 0.91.

It is interesting to note that our sequential bookings improvement was very broad-based, with 26 of our 36 operating companies reporting improved bookings, and these 26 companies represent roughly 75% of our revenue.

Second-quarter backlog was $1.1 billion, down 31% from last year, but up 5% sequentially.

With regard to pricing we are seeing increased price pressures, both competitively and due to lower commodity costs. I am very pleased with how our companies have proactively managed the cost versus price spread, resulting in a positive margin contribution year-to-date. In the second-half of the year we anticipate that pricing pressures will continue, if not intensify. However, our cost management efforts should largely offset any price reductions.

Given the very difficult market conditions, our operating performance reflects very solid execution by our business leaders. Operating margin for the quarter was 11.3%. And though down 450 basis points over the prior year, we were up 110 basis points sequentially. This performance reflected significant weaker volume versus a year ago, partially offset by the benefits of our restructuring efforts.

Electronic Technologies' operating margins sequentially improved from a negative 5.7% in the first-quarter to 7.3% in the second-quarter, and Engineered Systems improved margins 150 basis points sequentially.

Another note. In the first-half, nine of our 36 companies posted year-over-year margin improvement. Eight achieved this while managing revenue declines.

From a working capital perspective we continue to manage inventory levels and accounts receivable aggressively in the face of weak market conditions. As a result, we achieved a working capital to sales percentage of 19.9% and an inventory turn of 6.4. Although these results are weaker than the prior year, we are pleased with this performance, considering revenue was down over 30%.

We continue to pay close attention to working capital and expect improvement in our metrics over the next few quarters.

Cash flow generation has historically been a source of strength for Dover, and the second-quarter results bear this out. We generated free cash flow of $165 million in the second-quarter, which was 12% of revenue. This percentage represented a 250 basis point improvement over last year. We converted 164% of net operating earnings into free cash flow, a significant improvement over last year's rate of 101%.

For the six months ended June 30 our free cash flow was $249 million or 9% of revenue. We will continue to focus on activities that drive cash flow, and are confident that our full-year free cash flow will be in excess of 10% of revenue.

Our companies continued to work on what they can control, particularly cost management, product innovation and leverage activity. We incurred $19 million of restructuring costs in the second-quarter, which was $7 million less than forecasted. We still expect full-year restructuring costs to be roughly $73 million, with $10 million expected in the third-quarter.

We also spent roughly $5 million on our global supply chain program in the second-quarter, $8 million year-to-date. And we expect the second-half investment in this program to be roughly $14 million.

We have made a strategic decision to accelerate the pace of the program, and remain highly confident that this investment will bear significant benefits in the upcoming years.

Finally, we have the financial capacity and flexibility to pursue value-adding acquisitions, even in a down market. We closed on one such opportunity in May. While we are proactively pursuing other opportunities and continually evaluating a steady stream of acquisition candidates, we still see a disconnect with regard to sellers' timing and value expectations. Thus we expect a modest year in acquisitions, but are prepared to move quickly should attractive opportunities materialize.

CapEx was $27 million and in line with our full-year expectations. We expect no changes to our long-standing dividend policy, and we had no share repurchase activity in the quarter. Our strong balance sheet is a tremendous asset in these challenging times and will serve as a competitive advantage going forward.

Now let me turn the call over to Rob for comments on our segment performance.

Good morning everyone. I would like to cover our second-quarter segment performance and then discuss some additional financial information.

At Industrial Products sales were $383 million, down 41% from last year, with earnings of $25 million, down 71% from the second-quarter of 2008. Bookings were $372 million, down 41% from last year, but up sequentially 13%, indicating some stability in their end markets. Operating margin was 6.6%, down 690 basis points from last year, and also down 130 basis points sequentially.

This performance was largely driven by extremely weak conditions across the majority of end markets, particularly the infrastructure, automotive and energy-related markets served by our Material Handling platform.

Sales in our Material Handling platform decreased 50% to $154 million, while earnings decreased 82%, resulting in platform margins down about 1,100 basis points. Our aggressive cost-cutting activities, including significant reductions in workforce and facility consolidations, helped to partially offset continued weak conditions in essentially all end markets.

Although bookings increased sequentially, the second-quarter book-to-bill was 0.82. We do expect revenue in this platform to remain challenged, but anticipate a sequential improvement in operating margins. Although government economic stimulus should provide opportunities for this platform, we are not currently anticipating any benefits in 2009.

The Mobile Equipment platform recorded sales and earnings declines of 33% and 39%, respectively, while margins were relatively strong, down only 160 basis points. In general, margin performance was solid across this platform, capitalizing on aggressive restructuring actions taken earlier.

Heil Environmental and Sargent were the relative revenue outperformers in this platform. Quarterly bookings were $246 million, down 23% from the prior year, but up 17% sequentially, yielding a positive book-to-bill of 1.07.

Internal initiatives, combined with modest market improvement, should provide a climate which results in consistent second-half Mobile Equipment revenue performance.

Turning to Engineered Systems, sales were $467 million, down 13% from last year, but up 17% sequentially. Segment earnings were $57 million, down 28% over the prior-year period, but up 33% over the first-quarter. Bookings for the quarter where $466 million, down 12% year-over-year, but up 13% sequentially.

This strong sequential performance was driven by Hill Phoenix and Product ID. For the quarter operating margin was 12.3%, a 260 basis point decline over the prior-year period, but up 150 basis points sequentially. The margin decline was primarily the result of lower volume, restructuring costs and acquisition expenses. We did see favorable trends in bookings, revenue, earnings and margin as the quarter unfolded.

Our Product Identification platform saw improved demand trends during the second-quarter. For the quarter sales were $193 million, down 23%, reflecting a 17% core revenue decline and a 6% FX impact. On a sequential basis, revenue improved 9%, suggesting relative end market stability.

While year-over-year earnings were down 35%, and margins dropped 310 basis points, margins sequentially improved 220 basis points. This performance was consistent with generally weaker global demand and a modest recovery from some of the channel destocking we experienced earlier in the year. Also notable, the integration of Markem and Imaje was completed during the quarter.

Further, the pipeline of new product opportunities and favorable book-to-bill ratio of 1.07 give us comfort that we should see improved business conditions in the second-half.

The Engineered Products platform posted decreases in both sales and earnings year-over-year of 5% and 10%, respectively. Margin performance remained relatively strong, and operating margin was down only 90 basis points.

The highlight in this platform has been the acquisition and integration of select assets of Tyler Refrigeration by Hill Phoenix. This added $33 million of revenue to the quarter. And we continue to be excited by the strategic and economic potential of this acquisition.

Hill Phoenix, excluding Tyler, also showed strong performance in the quarter. In the North American refrigeration market that is estimated to be down 13% this year, Hill Phoenix delivered revenue down only mid single digits. The combined Hill Phoenix Tyler results helped to partially offset weak performance in the food packaging and preparation and HVAC end markets.

Here, as well, platform bookings strengthened as the quarter progressed, suggesting improved demand in the third-quarter. Innovative products that focus on sustainability and deep customer engagement, supported by strong operational execution, will help to provide a favorable climate for Engineered Products as we move forward.

Turning to Fluid Management, demand appears to have stabilized in the second-quarter across the segment, albeit at significantly lower levels, particularly in our oil and gas businesses.

For the quarter sales declined 34% to $295 million, and earnings were $56 million, a decline of 43%. Bookings were down 38% from the prior year, but flat sequentially. Second-quarter operating margins were 18.8%, down 310 basis points over last year, largely driven by a prior-year one-time litigation settlement.

For the six months ended June 30 operating margin was 20.9%, just 70 basis points lower on 26% less revenue. We expect to continue to deliver strong margin performance for the full year.

Our Energy platform, which is closely linked with North American rig count and oil and gas pricing, experienced a significant revenue decline in the second-quarter due to reduced demand for sucker rods, drill bit inserts and gas compression products.

Although second-quarter revenue and earnings declines were 41% and 42%, respectively, second-quarter margins were consistent with last year due to effective price and cost management.

Quarterly bookings declined only 7% sequentially, and strengthened throughout the quarter. Our order rates are consistent with a stabilizing North American rig count and fairly steady commodity prices. While we do not expect a sharp recovery in our Energy platform, we are anticipating a more stable revenue environment in the back half of the year, in-line with the second-quarter.

The Fluid Solutions platform posted revenue and earnings declines of 25%, yet produced margins that were up slightly from the prior year. Market conditions seem to have stabilized through the quarter, primarily driven by moderating channel inventory issues.

Bookings were down 27% from the prior year, but up 6% sequentially, yielding a positive book-to-bill of 1.02. This platform continues to benefit from integration and leverage initiatives, and is well positioned to maintain strong profitability in the anticipated stable demand environment.

Finally, Electronic Technologies continue to feel the effects of the weak Electronic Assembly market, but improved sequentially off of a very tough first-quarter.

Revenue was $246 million, down 35% from last year, but up 15% sequentially. Further, a first-quarter loss of $12 million rebounded to a second-quarter profit of $18 million, yielding an operating margin of 7.3%.

Aggressive first-quarter restructuring, coupled with a 15% sequential revenue growth, resulted in vastly improved margins. Our Electronic Assembly equipment companies, namely ECT, DEK and OK, began to benefit from improving factory utilization rates, and a focus on serving emerging applications such as MEMS and solar.

We expect to see seasonal improvements in factory utilization rates, which should bode well for the Electronic Assembly companies in the third-quarter.

Our electronic component companies continue to post strong operating margins, buoyed by relative stability in their key military, hearing aid and MEMS markets. Knowles executed at a very high level and continues to benefit from its MEMS technology and market expansion strategies, resulting in year-over-year organic sales growth.

Bookings showed improvement from April through June, indicating an increase in seasonal demand in these markets connected with consumer electronics. In this segment we continue to focus on product innovation, market expansion, and being the technology leader, which allows us to outperform our competitors in the weak markets, and generate significant earnings when markets are strong.

While we don't anticipate a strong Electronic Assembly market for some time, we still believe this segment will attain 10% operating margins during the second-half of 2009.

Having reviewed the segments, I would like to briefly provide some additional financial data. Regarding geographic sales for the six months ended June 30, Dover experienced a higher percentage of sales in the United States than in the previous year.

US sales were 59% of total revenue, compared to 56% for the same period last year. The rate of revenue decline in North America was less severe than in Europe and Asia.

Weak Electronic Assembly markets and the revenue mix at Product ID were the main drivers of this shift.

Second-quarter net interest expense was $24.8 million, down $2.5 million from last year, reflecting lower commercial paper outstanding and lower commercial paper costs. We continue to have excellent access to the commercial paper market. And our outstanding commercial paper balance at quarter end was $100 million.

Our net debt to total capitalization was 22.6%, a 230 basis point improvement from year-end 2008.

Turning to taxes, our second-quarter rate for continuing operations was 1.1%, a significant reduction from last year's second quarter rate of 29.3%. Year-to-date our tax rate of 17.4% compares favorably to last year's 29.4% rate.

The primary driver of our low second-quarter tax rate was $28.4 million in discrete benefits recognized for domestic tax positions that were effectively settled during the quarter. Although the impact of these benefits was factored into our original full year tax rate guidance, the exact timing of such benefits is often uncertain. While we expect the rates revert to more normative levels as the year unfolds, lower first-year earnings, coupled with the relative domestic foreign mix, leads us to believe that the full-year tax rate will be in the range of 25% to 26%.

Our restructuring activities enable us to maintain solid margins in this recessionary environment. We remain on track for full-year restructuring costs to be about $73 million, unchanged from our earlier guidance. Further, we still expect the 2009 benefits of these actions to be $125 million, with the benefit skewed to the back half of the year.

Corporate expenses for the second-quarter were $29.6 million, an increase of $4.6 million over last year. Year-to-date corporate expense is $54.3 million, slightly lower than 2008, but up about 10% over our previous estimated runrate for the full year.

This increase primarily reflects accelerated investments in our strategic global supply-chain program. We now expect full-year corporate expenses to be higher than originally anticipated in the range of $110 million to $115 million.

With that, I would like to turn this call back over to Bob.

Just to recap, though second-quarter trends unfolded much the way we thought they would, our anticipated seasonal pickup was less than expected. On the positive side, we expected good margin and cash flow performance, which our business leaders delivered.

In the second-quarter we saw order rates stabilize across the majority of our platforms, and even accelerate through the quarter in Product ID, Refrigeration, Energy and Electronic Assembly. We believe we will see these trends continue during the third-quarter.

Now let me update you on a couple of activities that will drive long-term value, our M&A program and our global supply-chain program. As you are aware, we have put in place a more disciplined M&A process, including a formal post merger integration capability.

A great example of this improved process is the strategic investment we made in early May to grow our position in the refrigeration system and case business. The Tyler acquisition, while only $34 million, will deliver significant value to Dover. Through this acquisition Hill Phoenix is now serving new customers, expanding its technology, and complementing its sales and service talent.

Tyler's former customers and employees have embraced this acquisition, and we are confident that customer retention rates will be higher than originally anticipated. This acquisition is expected to have a payback of less than 24 months, and demonstrates our post merger integration process and focus on speed of execution.

I am confident that our new proactive M&A process will enable us to create value more quickly than we have before.

Next, let's talk about our strategic global supply program. We have been moving quickly to leverage the scale of Dover by developing a coordinated sourcing and procurement process. During the second-quarter we began to aggressively build an infrastructure to support this strategy. Thus far, we have made good progress on internal training, tool and process development, and have begun to qualify a supplier base in the categories of logistics, plastics, castings, motors, and indirect supplies.

We hosted a conference in May that was attended by over 500 suppliers looking to do business with Dover. I was very impressed with the interest and motivation shown by the attendees supporting this important Dover initiative.

Although this program will be a net investment in 2009, we remain committed to save between $75 million and $100 million in the 2010 and 2011 timeframe. This is a great program that will deliver significant results.

Now looking forward to the balance of the year, we see an economic environment that may offer some slight improvement, but will generally be moving sideways. Accordingly, we do not foresee a meaningful recovery in revenue in the second-half. At this time we expect full-year revenue to be down roughly 24% to 26% from last year, including a 3% impact from FX.

Based on the revised revenue forecast, we now expect 2009 EPS to be in the range of $1.75 to $2. This guidance includes $0.02 accretion from the Tyler acquisition, and assumes a 25% to 26% tax rate for the whole year.

We will continue to control those things in our power, such as working capital management, cost containment, investing for the future and product innovation. We stand very well prepared to leverage any improvement in our markets when they occur.

I would like to comment on two executive retirements announced in the quarter. Dave Ropp, CEO of Industrial Products, who retired earlier this month, and Rob Kuhbach, who will retire later this year. Dave was with Dover for about 12 years, and not only made significant business contributions, but was always very engaged in developing our next generation of business leaders.

Tom Giacomini, who served as President of Warn and then ran the Material Handling platform, has exceeded Dave as President of Industrial Products.

Rob Kuhbach has served as Dover's Chief Financial Officer for nearly 7 years, and before that was General Counsel for 10 years. His financial stewardship has allowed Dover to build upon its strong reputation for financial integrity and transparency. We will all miss Rob's business judgment, sharp wit, and tireless work ethic.

Hired last month as Rob's successor was Brad Cerepak. Brad comes to Dover after most recently serving as Vice President and Controller for Trane.

As always, I would like to take this opportunity to thank all the Dover employees who have worked extremely hard to weather this economic storm. I am sure that for many it felt as if this storm would never subside. It now feels that the worst may be behind us, and we can focus on growth, designing, building and supporting world-class products and providing our customers with outstanding service, and winning new business through innovation and flexibility.

This downturn has shown me the true strength of Dover. I think the future is ripe for Dover. With that, I will turn it back to Paul for questions.

At this point I would just like to remind everybody if you can limit your question to one with a follow-up, that will better enable us to get everybody's questions in. So at this point, Jackie, if you can please compile the questions.

(Operator Instructions). John Inch, Merrill Lynch.

Could we get a little color on how the quarter progressed? And I am thinking obviously you saw some improvement sequentially, did things pick up toward the end, and what have you seen thus far in July? And maybe if you could provide a little color on a segment basis that would be helpful.

Instead of commenting by month through the quarter, I would split the quarter into first-half versus second-half. And we clearly saw a strengthening in order rates in the second-half of the quarter -- building through the second-half of the quarter versus April and the first-half of May. And we are very interested in this. So it is -- we have been monitoring activity so far in July, and the July quarter rates seem to support the activity we were seeing in the second-half of the quarter.

Meaning the improvement or pickup through the quarter held in July -- is that what you normally see (multiple speakers). Is that what you normally see in the third-quarter or is the third-quarter typically weaker first-half, stronger second-half?

It can be mixed. We would normally expect the second-half of the quarter to feel some impact from what we would refer to as European holidays. Though we can point to a couple of years here in the last three or four where that has not happened. It has been rather solid during the quarter. So we are watching it very closely.

Did that trend hold or was it consistent geographically? Because some companies are calling out actually deceleration in Europe. I am just curious what you guys saw (multiple speakers).

No, I would say that it held geographically. And the trend that I commented on first-half versus second-half through the quarter was rather consistent across all four segments.

Then just lastly, the $33 million you booked from Tyler, does that provide any kind of a clue as to what the kind of annualized or normalized runrate for revenues for Tyler could be?

If I am not mistaken there was -- I know when you had talked about it originally you were fairly conservative in what you thought you might be able to get. And not every customer maybe moves over. But, I don't know, the $33 million, does that provide a clue? Are you able to retain more customers than you thought? And what sort of annualized number do you think this could hold a clue toward?

I hope it provides more than a clue. Second-quarter revenue was $33 million. That was from May 8, which was when we closed, through the end of the quarter. Our second-half forecast on the Tyler revenue is about $90 million. Sitting here today we believe the runrate for the Tyler acquisition can be somewhere between $150 million and $200 million annually.

This is Paul. I would just add there has been some confusion in the marketplace. When we acquired the company, the 2008 revenue run rate was about $300 million. Some people had $400 million; some people had $300 million. The right number is around $300 million.

Okay. So around $300 million. So what happens to the $100 million? Let's say you do $200 million, because you're being conservative or a little bit better, where did the other $100 million dollars from where it was? Does that just get absorbed by other customers or what happens there?

We are telling you that our expectations are $150 to $200 million. We are at this time seeing much higher customer retention rates than we had in our original acquisition plan. We will see how that falls out over the next several months, as many of the customers do go through the process of their annual contract awards.

But to your specific question, what happens to the other $100 million? We intend to capture our fair share of that $100 million, but it is going to be absorbed by other competitors in the market.

I would also add that the market to some degree is not as strong this year, so you're basically talking about last year's $300 million versus this year's number, which will be otherwise lower. (multiple speakers).

So that makes sense. So in theory if you captured everybody, you could actually get to their runrate that is higher. That's all.

Correct.

Yes.

Okay, great. Thank you very much.

Nigel Coe, Deutsche Bank.

I just wanted to pick up on John's question on the Tyler deal. The $200 million you picked up since May 8, what sort of attachment rate does that -- do you think that represents?

What do you mean by attachment rate?

How many customers do you think -- you seemed at about somewhere between 50% and 65% retention rate. What do you think your retention was in May/June?

Again, I want to preface my comment by saying this is very early days. But the revenue in the second-quarter was $33 million. For all intents and purposes that revenue was in the acquired backlog on May 8.

Now when you look at the order rates -- you look at the order rates from May 8 through the closing, we believe we captured a very, very high percentage of the customer requirements that were booked between May 8 and June 30, perhaps well north of 80%.

Okay. That's helpful. You mentioned payback of less than two years. I guess the emphasis is on less than. But if I assume two years, you would be --

Mine is sort of like 18 months, to be honest with you.

18. But that still imply the contribution margin -- if I pick $2 million, which is your projection, that implies a contribution margin of somewhere between 12% and 15%. Seems somewhat low, but is that the kind of range that you are thinking about?

That is our starting point.

Okay. And then you called you retained the $125 million of cost savings from the headcount actions. At this stage what is your projection for 2010 roll through of those actions?

First of all, it was more than just headcount actions. We look at the $73 million of restructuring cost in 2009 and all the activities underneath that charge. I think the number right now that we are looking at for carry through into 2010 on an incremental over 2009 is about $40 million.

Okay. $40 million. Then just finally, since that -- on the global supply chain program, I think you previously said $75 million to $100 million of savings in 2010. You obviously had more time to go through the numbers now, is that still a good range?

Let me clarify that. We are in the early days of a multiyear program. And as I commented earlier, this is going to be a net -- a significant net investment for us this year. The first-half of next year -- it will continue to be a significant net investment for us in the first-half of next year.

In the second-half -- and we will receive some benefits in the fourth-quarter this year. They are going to be modest. We will receive more benefits in the first-half of next year -- growing. But in the second-half of next year we look at the program to be a net add to the bottom line. And that our run rate in the second-half of next year, I am looking at $75 million run rate in the second-half of next year.

Annualized.

Annualized.

Okay. That's helpful. Thanks a lot.

Steve Tusa, JPMorgan.

The Fluid margins, how should we expect those to trend over the next couple of quarters?

We will continue to see some modest pressure on margins during the second-half. I am not sure if I responded to you in January or one of the other callers with respect to DFM margins for the year. I think my response was 19% to 20% margins was our expectation for 2009. That still looks very good.

Okay to get to 19% to 20% you're looking at a sequential uptick?

I think if you do the math it would come into about an 18% margin for the second-half.

Okay, perfect. That's it. Thanks a lot.

Alex Blanton, Ingalls & Snyder.

Just a clarification on what you said earlier, that you expect a modest seasonal uptick in the third-quarter and then a seasonal adjustment in the fourth-quarter. But are we talking EPS here? Because without -- it looked to me like from what you said you had a $0.15 a share tax benefit in the second-quarter, is that correct?

It is a little high. It is probably --

28. -- didn't you say 28.2 -- 4 million?

Around $0.13.

Around $0.13, yes.

Generally right.

What?

It is around $0.13.

$0.13, okay. So then you really did only $0.40 -- $0.41 a normalized basis.

Correct.

So that was below the forecast of the analysts. So then when we are talking a modest uptick in the third-quarter, are we talking from the $0.54 that you reported or the $0.41 adjusted for the tax benefit?

First off, the seasonal comment, we do expect the -- let me speak to the second-half and then I will break it into the quarters. If you picked the midpoint of a revenue range for the year, down 25%. At that midpoint we look at second-half revenue to be up about 5% over the first-half. Now of that 5%, 3% is organic and 2% is coming from the Tyler acquisition.

You look at operating earnings. Alex, I am very pleased with how our companies and our business leaders have responded in the first-half of this year to protect the margins. We will see more of that activity in the second-half. We actually do believe our operating margins will be up 150 to 200 basis points in the second-half of the year over the first-half.

But in terms of the earnings per share, when you see -- when you say an uptick are you talking from the $0.54 in the third-quarter -- I mean, in the second-quarter to the third-quarter, or from the $0.41?

We were talking revenue there, Alex.

Revenue only.

Yes. We don't give EPS -- quarterly EPS guidance.

Okay, so it could easily be -- earnings per share could easily be below this tax benefited quarter, correct?

Yes, we gave you the full-year EPS range and we gave you what our revenue expectations are.

Right. Okay, got it. Second question is, you have had improvement in the second-half of the quarter in orders and activity, which you said continued into July. Can you -- you do do you have any sense of how much of that might have resulted from the end of destocking? In other words, earlier in the year people were reducing inventories quite a bit, and quite a bit more than they have in any other cycle that I can remember.

I agree.

And faster. So that they could have reduced their orders to you below the level of end market demand. So that if they stop reducing inventory, they would have to increase their orders to you just to meet their end market demand, even if it were still falling -- still falling. But they would have to raise their orders because they had reduced inventory so quickly. Is there any sense -- do you have any sense of how much of that is going on?

I don't really have hard data on that. It would be more anecdotal and opinion.

Yes.

The first-quarter -- late in '08 and the first couple of months in the first-quarter was absolutely brutal in the destocking activity. We did see it moderate in March. We continue to see it moderate in the first-half of the second-quarter, the destocking activity. And we did see some of what you're referring to, call it replenishment of the channel, in the second-half of the second-quarter.

It doesn't even mean --

I would also tell you that not all of our distribution channels have started restocking yet.

It isn't just a matter of -- you don't have to restock, you can keep the inventory level the same, but you have to raise your orders, because you are -- what you are ordering was so far below demand.

I understand that. This is something that all of our companies struggle with. And we are being a bit pressed for time, so I'm going to ask for the next question.

Terry Darling, Goldman Sachs.

I am trying to just interpret the second-half margin expectations versus previous. You had a lot of moving pieces with Tyler and FX and corporate. If we just look at segment margins for the company before corporate, the operating margin expectations for the second-half of up 150 to 200 basis points, is that change versus previous, within the context of the lower guidance? And if so, can you talk about which segments are the drivers there?

Gosh, I don't have that hard data in front of me. My sense is that the second-half margins, we are looking at it versus the first-half. We do see an improvement of about 150 to 200 basis points. My sense is that that margin for the second-half is probably down about 100 basis points from what we were looking at in April.

Okay. Perhaps that ties out with your comment about -- it may be mix, but maybe also with your comment about the competitive pricing pressures that you talked about in the opening remarks. I am wondering if you could talk about, number one, which businesses are you seeing that most acute, really from the standpoint of the competitive element of your comment? And then second why wouldn't you accelerate restructuring efforts to try to offset that?

I am not sure I can give you a company by company dissertation on the second-half. I would say that the segment that continues to be probably most challenged with respect to margins is Industrial Products. And even though we do expect and are forecasting improvements in margins and the -- in the second-half, this is the segment that is most challenged with respect to margin performance relative to the forecast we gave you in April.

I am sorry, I'm talking about your pricing pressure comments.

Yes.

They are probably related to some degree, but which areas are you seeing the most competitive --?

Throughout the Industrial Products segment and in some parts for Energy platform. Now it is interesting, I don't have real hard data on this, but you look at the companies that have the greatest exposure to commodity costs, especially metal, we've got a lot of discussions with these companies during the first-half, very focused in the second-quarter.

And we could -- we can see price pressures in the first-half with those group of companies within Industrial Products and the Energy platform, that may have impacted their revenue or their top line by 2 to 3 points. Collectively when you aggregate that for Dover, that may have given us headwind in the first-half for Dover of about 1% to 1.2% of sales. We would expect it to increase in the second-half.

For that same group of companies, maybe instead of a headwind of 2 to 3 points, maybe it is 3 or 4 points. That will provide some headwind to Dover of about 1.5% on the top line.

Now the flip side of that is during the first-half we did a very, very good job of managing when I call the price versus cost spread. And I do believe that collectively around Dover we probably added to our operating margin 1 point on that activity. Our forecast in the second-half is for that to be neutral.

Okay. That is all very helpful. On the supply chain, I think maybe Rob called out what the total investment is, but can you just come back to us on that and just make sure we are clear. You're talking systems here. This is really a big IT spend, but maybe there is more to it.

The IT spend is part of the increased spending in the second-half, and that will continue for a while. We will not complete an IT package here in the second-half of '09.

But it is not only IT, we are spending a tremendous amount of money in training -- several million dollars in training -- and process development and the tools we need to do the right analytics. This is not just a cost down exercise that we are going through with our suppliers. Again, this is a multiyear program and we want to embed a capability in the organization that will benefit Dover for a long time.

The spend in the supply chain initiative -- the discrete spend in the supply chain initiative in '09 will be about $22 million. That is offset by some savings that frankly are less than $1 million in '09. That spend rate in the second-half would very likely continue through all of 2010. That second-half spend rate will continue through 2010. In the second-half of 2010 the benefit -- the bottom-line impact to Dover should turn positive.

So we can essentially use the corporate expense this quarter as a run rate through next year?

I think we have given you (multiple speakers).

Plus some inflation on the other?

That's true. That's good.

Then lastly, Rob, just on tax rate thinking for 2010, it looks like at the low end -- or the high end of the range the second-half can be as high as 32%. As we think about 2010 counsel for us there, does that come back to the upper 20s or --?

I would say that a normalized rate it is 29% to 30%. As always, we are going to have these discrete events come up that will impact our quarterly rate. That is the just the nature of FIN48 that we have to deal with. But I would say 29% to 30% would be a normalized rate for '10.

Thanks very much gentleman.

Your final question comes from the line of Shannon O'Callaghan, Barclays Capital.

Can you fill out the Product ID thoughts a little bit? Last quarter it started off weak, and March was looking better. And then 2Q didn't turn out to be better. Can you talk about what you saw happen there, both on the equipment and consumable side?

Let me start first by just reminding you for our Product ID, it is really two different businesses. Even though we run -- we run the logistics as a leverage activity. We've got barcoding, which is Datamax and O'Neil, and we've got Direct Coding, which is Markem-Imaje.

The business that has been struggling, and it has been struggling for a while, has been our barcoding business. We had a leadership change there in December to try to effect some changes. The activity in the first-half on order rates was rather flat through -- second-quarter was flat with the first-quarter. We did not see an improvement. We had a loss in the barcoding business in the first-quarter. It did swing to modest earnings in the second-quarter.

The real driver of our business is a Direct Coding, which is Markem-Imaje. To give you a relative size here Markem-Imaje is about six times the size of our barcoding business.

Second-quarter for Direct Coding, we had about a 10% revenue growth in Direct Coding versus the first-quarter. We had a 17% increase in bookings in the second-quarter sequentially. We had a 16% improvement in earnings sequentially at Direct Coding.

From a geographic perspective, I commented about Dover having less of a decline in North America than we were staying in the rest of the world. This is very true at Product ID and Direct Coding. Our North America business held up better during this downturn than did Europe and Asia. In fact, our North America decline in revenue at Direct Coding in the first-half of the year is about that 5 or 6 points less than their overall decline.

The largest decline for Direct Coding has actually been in Asia. Our business mix is quite different there than it is in North America and Europe. North America and Europe is predominantly food and beverage -- more than half -- food and beverage, and I will call, consumer staples. In Asia it is a much higher percentage towards industrial and electronics applications that really support the export market out of China. The export market has been pretty weak in the first-half.

We do see signs coming out of China that the export market is picking up. And we do -- we are expecting some improvement in the second-half in China for Product ID.

Aside from barcoding, the business is performing quite well. As Rob mentioned, we have completed the -- we have essentially said we are done with the integration of Markem-Imaje. It is complete. And the leadership team at Product ID is very, very focused now on growing the top line.

Is the focus now also fixing the problems over in barcode? What do you really need to do there?

I think we have gone through, I will call it our internal remediation actions in the first-half. That included headcount reductions. It included a couple of facility consolidations. We -- I commented that second-quarter bookings were flat with the first-quarter. We saw a little bit different activity in June there that was positive, and we believe that is continuing in July. I think we've got the right team in place now at barcoding. And I think they're pretty focused on the right things and what they need to do. So I think we are in the mode of improving it now.

Just a last one is just, can you fill out a little more your thoughts on where Electronic Assembly business is heading into the second-half?

We expect a little bit more of an improvement in the third-quarter, even over the second-quarter on Electronic Assembly. Order rates are going to be a little bit higher in the third-quarter. We expect revenue to be up a little bit. This is all -- both second-quarter and third-quarter activity I would label to just normal patterns in the Electronic Assembly market.

Fourth-quarter -- fourth-quarter we do -- and it is in our guidance, the fourth-quarter we do see a seasonal adjustment down in Electronic Assembly. That is normal. We are seeing signs, especially in the semiconductor area, of factory utilization rates improving -- not where they need to be.

But the other comment I would make about Electronic Assembly is that our restructuring activity, not only in Electronic Assembly, but within the Electronic Technologies segment, is complete. The earnings and the margins in the second-half will not be weighted by restructuring charges, and will see some benefits from the restructuring activity.

Okay. Great. Thanks a lot.

Thank you. At this time we have no further questions. Mr. Goldberg, are there any closing remarks?

Yes, thanks everybody for joining us. Before we conclude this conference call I would just like to turn it back to Rob for some final comments.

Thanks, Paul. It was about 17 years ago that I got a call from Tom Sutton, Dover's former Chairman and CEO, inviting me to join the Dover team as Dover's first Vice President and General Counsel and Secretary. I did some homework and decided to join Dover early in 1993. Before doing so, I was so impressed that I bought 500 shares of Dover stock, which I still own.

It has been a tremendous experience to have spent nearly 17 years at Dover in two different, yet very rewarding, careers. This is a tremendous company with a a proud culture. It has changed a lot, all to the good. More good things are coming, yet despite all these positive changes the core values of trust, integrity and an intense respect for people remain intact, well-deserved and critical for future success.

I want to thank three audiences today. First, to all of the current and former Board members, executives, employees, I say thanks for a great career, and all the help and support you have shown me in Dover. You have made my work here intellectually stimulating and rewarding. It has been a great ride. I wish all of you, particularly the new executive management team, and especially Brad Cerepak, my successor, much success going forward.

To Bob Livingston, the fourth CEO of Dover for whom I have worked, a special thanks for making my final year at Dover so rewarding. I have enormous confidence that you will lead Dover wisely and well in the years ahead. As I now own over 80,000 shares of Dover stock, I will be watching with great interest as you make Dover an even more successful company going forward. And as a number of retiring executives have been known to comment, just don't mess it up.

Second, to of the analysts and investors I have known over the years, I say thanks for all your support and enthusiasm. Again, it has been a tremendous experience meeting and working with great people who have shown a keen interest in this company, and I trust you will continue to stay engaged with Dover as it achieves more success in future years.

Last, but not least, I want to thank my family, and particularly my wife and partner Sherrell Andrews, who has supported me enormously over these past 17 years as I worked for Dover. Without your unqualified enthusiasm, my success at Dover would not have been possible.

Thanks a lot, Rob. And this concludes our conference call. We thank you for your interest, and we look forward to speaking to you next quarter.

Thank you. That concludes today's second-quarter 2009 Dover Corporation earnings conference call. You may now disconnect your lines at this time. And have a wonderful day.