道爾 (DOV) 2009 Q3 法說會逐字稿

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

After the speakers' opening remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded. And 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 now like to turn the call over to Mr. Paul Goldberg. Mr. Goldberg, please go ahead, sir.

Thank you, Wes. Good morning, and welcome to Dover's third-quarter earnings call. With me today are Bob Livingston, Dover's President and Chief Executive Officer and Brad Cerepak, our CFO.

Today's call we will begin with some comments from Bob and Brad on Dover's third-quarter operating and financial performance and our outlook for the rest of 2009. We will then open up the call 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, investor supplement, and associated presentation can be found on our website, www.DoverCorporation.com. This call will be available for playback through 11 PM, October 23, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 1687. When accessing the playback, you will need to supply the following reservation code 34770706.

Before we get started, I would like to remind everyone that our comments today, 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 statement.

Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website, where considerably more information can be found. With that, I would like to turn this call over to Bob.

Thanks, Paul. Good morning, everyone, and thank you for joining us for this morning's conference call. Before getting into the details, I would like to provide some general comments on our end markets, the current business climate, and our thoughts on what we expect for the balance of 2009.

All in all, I was pleased with the way the third quarter unfolded. The stability in order rates first observed at the end of the second quarter carried on through the third quarter. And some of our businesses, particularly those in Electronic Technologies and Engineered Systems, showed encouraging sequential growth. Even those end markets that have been challenged for the past few quarters, particularly those served by our material handling and energy platforms, saw some signs of life.

As we enter the fourth quarter, order levels remain steady, the pricing environment is stable, and the acquisition pipeline is more active. We are well-positioned to finish the fourth quarter as we expected and discussed on our last call.

With that, let me move to our third-quarter results. Today, we reported third-quarter earnings per share from continuing operations of $0.58, down 43% from the third quarter of last year, which was the highest in Dover history. Third-quarter revenue was $1.5 billion, down 24% from last year, but up 8% sequentially. Net earnings from continuing operations were $107 million, down 44% from the prior year, but up 7% on a sequential basis.

Dover's 24% quarterly revenue decline was the result of a 24% decline in core revenue, coupled with a 2% negative impact of FX and a 2% gain from net acquisitions. Our sequential revenue increase of 8% was broad-based as 23 of our 34 companies reported improved sequential revenue for the quarter.

Bookings for the quarter were $1.4 billion, down 25% over the prior year, but up 4% sequentially. All segments, with the exception of Industrial Products, posted sequential improvements in order rates. 25 of our 34 businesses saw sequential bookings gains.

Our overall book-to-bill was 0.95 for the quarter, consistent with normal seasonality, though book-to-bill was greater than 1 in both Fluid Management and Electronic Technologies. Although most of our end markets generally improved in the third quarter, they were still at or near historical low levels.

Given that as a backdrop, I'm very pleased with our quarterly performance, specifically our operating margins and cash flow. Our business leaders have continued to deliver solid results in a tough environment.

Operating margin for the quarter was 14.3%, down only 160 basis points from the prior year, but up 300 basis points sequentially. This performance reflects significantly weaker volume compared to a year ago, largely offset by the benefits of our restructuring efforts and lower restructuring expenses this quarter.

Operating margin improved sequentially in all segments. Electronic Technologies improved margins over 600 basis points. Industrial Products and Engineered Systems both improved over 250 basis points. And Fluid Management's margins were up 80 basis points.

In the third quarter, we generated free cash flow of $222 million or 14.8% of revenue. For the nine months ended September 30, we generated $471 million of free cash flow, which represents 11% of our revenue. This percentage is in line with last year's performance and illustrates our consistency with regard to cash generation. We remain confident that our full-year free cash flow will be in excess of 10% of revenue.

In the third quarter, we achieved a working capital to sales percentage of 20.3% and inventory turns of 6.2. Although these results are slightly weaker than the prior year, we are pleased with the overall performance considering the condition of our underlying markets.

We always try to balance our working capital needs with our commitment to service our customers and their expectation of shorter cycle times.

With regard to restructuring, we remain on track with our forecasted plans and expect to incur roughly $73 million in restructuring costs for the full year. The benefit of these actions is reflected in our leaner operations and embedded in our margins.

We also continue to invest in our global supply chain program in the third quarter, knowing full well that the bulk of the savings will not be seen until 2011 and beyond. This is an important initiative for us and the investments we make now will serve all Dover's stakeholders well for years to come.

Finally, capital allocation. We have been encouraged by recent developments in the M&A market. The valuation gap that existed between sellers and buyers has narrowed over the past few months, primarily due to the stabilization of the underlying economy. We closed on one small synergistic deal in the third quarter. We are currently working on several other add-on deals and are hopeful to complete some before year end. As I've commented before, the deals we are looking at will complement our strong positions in markets we already serve.

CapEx was $25 million and in line with our full-year expectations.

Lastly, we increased our dividend 4% in the third quarter, marking the 54th consecutive year we have increased our annual dividend. This is the fourth longest record on the New York Stock Exchange and a clear testament to the financial strength of our Company.

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

Thank you, Bob. Good morning, everyone. I would like to quickly cover our third-quarter segment performance and then discuss some additional financial information. Before I begin the discussion, I would like to point to slide 6 of our presentation, which contains the sequential information that I will refer to throughout my comments today.

Now turning to slide 7, Industrial Products revenue was $396 million. Although down 37% from last year, it was up 3% sequentially. Segment earnings were $38 million, down 49% from the third quarter of 2008, but up 50% over the second quarter of 2009, as we began to see the benefits from our earlier restructuring initiatives. Bookings were $354 million, down 40% from last year and down only 5% sequentially, indicating general stability in end markets absent the effects of a lumpy military market and normal seasonality. Although operating margin was down 230 basis points from last year to 9.6%, they were up 300 basis points sequentially.

The year-over-year performance in this segment continues to reflect weak conditions across the majority of end markets, especially the infrastructure, automotive and energy-related markets served by our Material Handling and automotive and energy-related markets served by our Material Handling platform.

The benefits of our rightsizing actions coupled with solid performance at Sargent and Heil Environmental helped drive operating margins to nearly 10%.

Sales in our Material Handling platform decreased 46% to $154 million, while earnings decreased 54%. This resulted in platform margins down about 200 basis points from 2008's results. Sequentially, these results represent an 87% improvement in earnings on flat revenue, driven by our aggressive cost-cutting activities.

For the quarter, bookings were up 29% on a sequential basis and book-to-bill was 1.06. Although we do not anticipate a quick recovery in this platform, any modest uptick in volume should leverage well, given our lower cost structure.

With respect to our Mobile Equipment platform, sales and earnings declined 29% and 28%, respectively. Margins were strong, up 40 basis points over the prior year and 200 basis points sequentially. Margin performance was solid across this platform, capitalizing on aggressive restructuring actions and business integrations.

Heil Environmental, Sargent and PDQ were the relative revenue out-performers. Bookings were $192 million in the quarter, down 35% from the prior year and down 22% sequentially, largely driven by lower military orders.

Turning to slide 8, at Engineering Systems, sales were $521 million, only down 1% from last year and up 11% sequentially. Although segment earnings were down 5% over the prior-year period to $78 million, they were up 36% over the second quarter of 2009. Bookings for the quarter were $471 million, down 4% from the prior year and up 1% sequentially. This strong sequential performance was primarily driven by SWEP, Product ID and the Tyler acquisition.

For the quarter, operating margin was 15%, a 60-basis point decline over the prior period, but 270 basis point improvement over the previous quarter. The margin performance benefited from higher volume and strong leverage at SWEP and Product ID.

Further, we saw favorable trends in bookings at all businesses with the exception of Hill PHOENIX, which had lower bookings due to traditional seasonality.

Our Product Identification platform continued to benefit from the improved demand trends first seen during the second quarter of this year. For the quarter, sales were $212 million, down 10%, reflecting a 6% core revenue decline and a 4% FX impact. On a sequential basis, revenue improved 10%, which is consistent with the improvement we saw in the second quarter over the first quarter. This data leads us to believe end markets have indeed improved and the channel issues we encountered in the beginning of the year have largely abated.

Year-over-year earnings were down only 3%, and year-over-year margins improved 160 basis points. Sequentially, margins improved 570 basis points.

This outstanding performance reflected a modest recovery, leveraged over a leaner cost base and the continuing benefits of the Markem-Imaje integration. Also notable, a solid book-to-bill ratio of 1 leads us to believe this platform will deliver strong fourth-quarter results. Our engineered products platform posted an increase of revenue of 7%, while earnings declined 1% year over year.

Margin performance remained strong. A highlight in this platform continues to be the successful integration of Tyler Refrigeration by Hill PHOENIX, which provided revenue of $65 million during the quarter. Year over year, the strong Hill PHOENIX results helped to partially offset soft performance in the food packaging and HVAC end markets. Our companies that serve these markets, however, continue to see better business conditions, and all have sequential revenue growth with the exception of one. We expect this platform to exhibit a normal seasonal slowdown in the next two quarters, as retailers traditionally reduce store remodels during the holiday selling season and winter months.

Moving to slide 9, at Fluid Management, the signs of stabilization first observed in the second quarter held through the third quarter. Revenue moderately improved on a sequential basis for a majority of the companies in this segment, as overall sequential revenue growth was 5%. For the quarter, sales decline 32% to $309 million and segment earnings were $61 million, a decline of 41%.

Bookings were down 30% from the prior year, but up 11% sequentially, driven by a 19% sequential increase in the energy platform. Third-quarter operating margins were 19.6% and although down 300 basis points over last year, they improved 80 basis points sequentially.

For the nine months ended September 30, operating margin was 20.5%. We began the year with the goal to keep full-year margin in this segment around 19% to 20%, and we fully expect to achieve that goal.

Our energy platform, which is closely correlated to the North American rig count, saw 5% sequential revenue growth as rig counts gradually improved. That being said, year-over-year comparisons in energy are still difficult.

Third-quarter revenue and earnings declined 42% and 43% respectively. Third-quarter margin remained consistent with last year due to effective price and cost management and restructuring.

Quarterly bookings improved 19% sequentially and accelerated through the quarter. Though book-to-bill was 1.09 in this platform, we do not expect a sharp recovery in our energy platform over the next few quarters.

The Fluid Solutions platform had revenue and earnings declines of 19% and 22%, respectively, yet produced margins that were only down 100 basis points from the prior year. On a sequential basis, revenue was up 5% and bookings remained fairly consistent through the quarter. Overall, bookings were down 15% from the prior year but up 4% sequentially, yielding a book-to-bill of 1.01. This platform has weathered the recession well and is now in good position to leverage the eventual market recovery when it occurs.

Now Turning to slide 10, Electronic Technologies finally began to see the positive effects of a seasonally improving electronics assembly market and the continuation of a solid performance of our electronics component businesses. They also benefited from restructuring activities taken earlier in the year, although revenue was down 24% from last year to $275 million, it was up 12% sequentially. Further, a first-quarter loss of $12 million rebounded to third-quarter segment earnings of $38 million, yielding an operating margin of 13.9%. The book-to-bill for the quarter was 1.03.

Our electronic assembly equipment companies, namely ECT DEK and OK continue to benefit not only from improving factory utilization rates, but also from their conscious decision to expand their core markets and focus on recurring revenue. While the improvements we have seen in the traditional electronic assembly market may not be more than seasonal at this time, we are hopeful that this could be the beginning of a new investment cycle in the industry. However, we remain cautious.

Our electronic component companies continue to post strong results achieved through technology leadership and relative stability in their key military, hearing aid and MEMS markets. Knowles' strong customer focus and market expansion strategies have resulted in organic sales growth. Bookings continue to be strong in this space.

Having reviewed the segments, I would like to briefly provide some additional financial data.

Turning to slide 11, regarding geographic sales for the nine months ended September 30, Dover's geographic distribution of revenue was slightly more concentrated in the United States than in the previous year. US sales were 57% compared to 56% for the same period last year.

With regard to sequential revenue growth from a geographic perspective, our 8% increase in sequential revenue was broad-based across all geographies.

Moving to slide 12, third-quarter net interest expense was $26.3 million, up 1% from last year, reflecting low returns on invested balances, partially offset by lower commercial paper costs. Our net debt to total capitalization was 18.7%, a 620 basis points decrease from year end 2008, driven by strong cash flow and relatively lower CapEx and acquisition expense.

Turning to taxes, our third-quarter rate for continuing operations was 30.5%, an increase of 480 basis points over last year's third-quarter rate of 25.7%. Year to date, our tax rate of 23.2% compares favorably to last year's 28.1% rate. The primary driver of our low year-to-date tax rate is a discrete benefit recognized in the second quarter. We continue to expect the full-year tax rate to be in the range of 25% to 26%, with the fourth-quarter rate in the 31% range.

Corporate expenses for the third quarter were $34.1 million, an increase of $3.3 million over last year. Year-to-date corporate expenses were $88.4 million, a 3% increase over last year. This increase primarily reflects accelerated investments in our strategic global supply chain program, costs associated with other scale and leverage activities, and increased corporate development costs, including deal-related expenses.

These investments are important and are creating the framework for generating growth, margin expansion, and productivity improvements over the next few years. We now expect full-year corporate expenses to be around $115 million.

Turning to slide 13, in the third quarter, restructuring charges were $9 million, generally split among Fluid Management, Industrial Products and Engineered Systems. We remain on track for full-year restructuring costs to be about $73 million, unchanged from our earlier guidance. Further, we still expect 2009 benefits of those actions to be $125 million for the full year, with $30 million to $40 million incremental benefit projected for next year.

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

Thanks, Brad. In summary, the stabilization and end markets first observed in the second quarter held true in the third. Organic revenue modestly increased on a sequential basis, and the benefits of a restructuring began to flow through in a meaningful way. The results were improved gross and operating margins across the board and strong cash flow generation. Additionally, we saw continued solid performances from Knowles, Hill PHOENIX, and Product ID, while our electronic assembly companies posted encouraging sequential pickups. Our order rates indicate that even with some fourth-quarter seasonality, these trends should continue.

From a longer-term perspective, we continue to work on those projects and initiatives which will provide Dover with a platform for sustained value creation. Namely, our M&A program, inclusive of our improved post-merger integration process and our leverage initiatives, inclusive of our global supply chain initiative.

Having already discussed both M&A and global procurement on earlier calls, I would like to comment on two recent announcements that speak to our leverage initiatives.

In September, we officially opened our new China regional headquarters and two new shared manufacturing facilities in Shanghai and Suzhou. The China regional headquarters will provide the necessary infrastructure for us to continue to grow in this region. Although we have been in China for almost 20 years, we have always approached the market company by company. We now have an infrastructure that connects all of our businesses in China for the first time. I am confident that our operating companies, with the support of our Shanghai office, will be better positioned to grow in this dynamic market through both increased market penetration and acquisitions.

As mentioned, we opened two new shared manufacturing facilities in China, and each supports multiple operating companies. We get best-cost manufacturing while leveraging our scale, which in turn will allow us to be more competitive in serving the local markets.

Now, with respect to our fourth-quarter outlook, while we remain optimistic of a more comprehensive market recovery, we still need to be grounded in reality. Markets have certainly stabilized, but they have not meaningfully improved. Consistent with our comments last quarter, we continue to expect full-year revenue to be down 24% to 26% from last year. Based on this unchanged revenue forecast, we expect 2009 EPS to be around the midpoint of our previously provided range of $1.75 to $2.00.

In closing, I would like to take this opportunity to thank all of the Dover employees around the globe for their hard work and support. We have made a lot of changes around Dover the past year, and I believe we are now much better positioned to take advantage of the many opportunities that will certainly come our way. With that, I will turn it back to Paul for questions.

Thanks, Bob. Before we turn the call over to questions, I just want to clarify my earlier comment. Our call will be available for playback until November 6. I think in the beginning of the call, I said October 23. But it is November 6. So now I would like to ask Wes to compile questions?

(Operator Instructions). Shannon O'Callaghan, Barclays Capital.

Good morning, guys. Can you just give a little more feel on the 4Q guide? I mean you typically, from an earnings standpoint, wouldn't have that kind of a sequential drop. Is there anything else driving your caution around sequential trends or seasonality this year versus other years?

This is Bob. I think you've touched on the two key points. We are expecting some normal seasonality in the fourth quarter. Actually if you extend our revenue guidance, I think you'd come to the math that we are looking for revenue to be down about $90 million?

About $90 million, Shannon.

In the fourth quarter. And Shannon, the lion's share of that is within our Federation businesses, Hill PHOENIX and SWEP, and that is normal seasonality.

We have seen an improvement during the third quarter from the low levels of the first half, but I would just tell you we remain a bit cautious.

What about, from a margin standpoint, really strong execution this quarter. Anything in those numbers you saw a nice bounce-back in fluid; obviously, a big move in Engineered Systems. Anything in there that you don't see sustaining itself, that you are taking back out? Are material costs going to come up and hit you a little more in 4Q or anything like that?

No, Shannon, I don't think there's anything in particular. Again, it gets back to really our volume. If I was to do the puts and takes with you, volume price and mix is about somewhere around $0.14, $0.10 to $0.14, somewhere in that range, with price being pretty small, maybe a penny to a penny and a half.

Our restructuring, most of our restructuring benefits started coming through in third quarter, and that's why you are seeing good margin expansion. There's a little bit into the fourth, but not much. And then we have some deal-related expenses and other costs. So that's basically the puts and takes for the fourth quarter.

Okay. And what are you baking in for the semi business in 4Q sequentially?

I don't have the hard numbers in front of me with the fourth-quarter forecast for the electronic assembly, but we are expecting it to be down seasonally, and it's normal.

Okay. So nothing really out of the ordinary.

Nothing out of the ordinary.

And just last one for me is the $65 million of Tyler revenues, what do you think that is in terms of a seasonally adjusted run rate? In terms of how we're tracking on what the revenue base of that business could be inside Dover?

I think we commented on this in some detail in our July call. But on that call, we said that we expected to capture $150 million to $200 million per year of revenue from the Tyler acquisition. I will admit, and glad to do so, that our results so far would tend to push us to the higher end of that range, but then I caution you. We are still early days in this process. We need another 12 to 18 months for this to play out.

Okay. All right. Thanks, guys.

Scott Davis, Morgan Stanley.

I know, Bob, you made some comments at the beginning of the call, but I jumped on a little bit late. Can you -- you did a super deal with this Tyler. Can you talk to kind of your deal pipeline as it relates to other things that could fit in that type of mold? I don't mean just in refrigeration, but across the portfolio?

Well, gosh, Scott, I would like to sit here and tell you that we've got 12 deals in the pipeline that would reflect similar economics to the Tyler deal, but we don't. But I would say we have somewhere in the $150 million to $200 million plus range of deals that we are pursuing with a great deal of interest. And it's possible, actually, I would say I'm hopeful that maybe we could close on a $100 million to $200 million worth of acquisitions in the fourth quarter. But it's not done until it's done.

Right.

I will tell you that the acquisitions we are looking at, as I commented earlier in the call, are in the spaces where we have strong market positions today.

Okay. Okay, that's enough of that. On -- just a little bit of a couple cleanup little items here. One, I know you guys don't have much of a pension issue, but do you have any -- since discount rates have fallen so far -- any kind of legacy plans that have been closed down that could cause some issues for next year?

This is Paul, Scott. No, we don't have any pension issues at all. We have a very small pension plan relative to the Company and very well-funded, so I would not even waste too much more time talking about it.

Okay, fair enough.

And then the last question I have, with a book-to-bill in that 0.95 range, which seems pretty encouraging, what does that -- how does that impact kind of how you think about further restructuring or repositioning into 2010? Are you pretty much done at this point, or is there still more low-hanging fruit out there?

Scott, this is Brad. I would say we are continuing to execute on the restructuring plans that we had put in place earlier in the year. We will continue to look at things as we go forward, but I don't expect that you'll see any broad-based new large restructuring activities at this stage.

Okay, super. Thanks, guys. Appreciate it.

Robert McCarthy, Robert W. Baird.

I don't mean to beat a dead horse but I want to come back again to fourth-quarter guidance. And not to be difficult or confrontational, but I would suggest that the kind of earnings-per-share decline that you all are forecasting is a bit unusual. It seems to me that a more normal pattern of seasonal weakness in the fourth quarter would probably only yield a couple pennies decline in earnings per share instead of the roughly 25% decline that is embedded in your guidance.

So I'm interested in weighing how much of the third quarter was a surprise even to you in terms of performance versus how conservative you are trying to be because of the issues that you see in the marketplace that might not be obvious to us?

Well, Rob, this is Bob. Let me refer you back again to the guidance that we gave in July with respect to revenue. And we viewed the portfolio at that time as capable of delivering a 5% sequential growth in the second half over the first half. And out of that, out of that 5% sequential growth, we were identifying 3% organic and 2% from acquisitions, primarily the Tyler deal. That number is still pretty good. It's going to be 5% for the second half. We were up 8%. We were up 8% sequentially in the third quarter. We are going to be down in the fourth quarter, again, due to seasonality, not due to problems but due to seasonality. And the revenue guidance that we gave in July, I'm telling you, is very largely unchanged.

Now, with respect to EPS, I'm going to punt that one to Brad.

Well I mean I already have gone through the puts and takes, but if you take those numbers, and as Bob said, we're going up 8% sequentially then down 6%, but over the first half, the fourth quarter on a run rate basis is 2% up. And so if you do the math, you will find we are down $90 million, to the midpoint, down $90 million in revenue, all in the refrigeration businesses. And at a decremental margin of the high to mid-30s, you would find that you have this volume mix impact to our EPS guidance.

And Rob, I'll add a color comment to that. We are being a bit cautious just because of the uncertainty, and I do think it's possible we may do a little bit better.

You know, there's been a fairly common trend across the industrial sector of delivering third-quarter revenue generally in line with what most management teams appear to expect, but with stronger profitability than they've been promising shareholders. It would appear that the spread between past price increases and the flow-through of lower materials costs has been a major contributor at a lot of those companies.

Did you similarly get a little extra help this quarter from the timing lag on these things coming through the P&L?

Yes, we did, although it's smaller than it was in the first half of the year, and so it did compress a bit. But if I come back to that question and say let's direct it to the question of price and what's happening in price, last call we said price would be about 1.5% of revenue. We see it now as being less than 1% on revenue for the full year and it's stable going from the third quarter into the fourth; it stabilized for us. So to answer your question, yes, we do have a little bit of favorability in the third and still into the fourth, and price is not as significant as we thought earlier in the year.

And that's volume adjusted, so can you give us some idea where you've seen weaker pricing than expected?

It's been very specific with certain op-cos. Even though we have done a great job holding margins in our energy platform, we've probably seen as much pricing pressure in the energy platform as we have -- more so than we have in any other part of the business.

Okay. All right. Thank you. Very helpful.

Nigel Coe, Deutsche Bank.

Good morning. Just wanted to dig into the commentary on, you're looking for your semi cap businesses to be down sequentially. And I do understand there is some seasonality there usually. If I look at the September bookings data from semi, it does suggest that there could be some sequential growth in that market. Can you just maybe comment on that, please?

Yes, well, Nigel, we've seen the same data. But we've also lived through the fourth-quarter trends for several years now. We had our booking activity in the third quarter, I will tell you, was better than we expected entering the third quarter. We don't see a significant change in order rates in October. November and December tend to be a bit of a wild card with order rates in this space. It really does depend upon short-term investment decisions that some of the factories in China are making. We are predicting a fourth-quarter seasonality downward adjustment in the electronic assembly.

Okay, no, that's fair enough.

And then I noticed that yesterday, Wal-Mart raised their CapEx for next year. It looks like they're going to start raising some of their remodeling as well. So just wondering, are you hearing similar commentary from some of your retail customers beyond Wal-Mart?

I would say that the guys at Engineered Systems and specifically at Hill PHOENIX stay very, very close to that. The commentary does change, but I think right now our belief, and maybe I should say our strong hope and approaching belief, is that the CapEx in this space will be a little bit better next year than it was this year.

Okay.

And then, just turning to some of the weakness in the Industrial Products bookings, you talked about the military orders are down. I understand that they can be lumpy, but I just want to confirm that they tend to be longer cycle, so not necessarily indicative of [forky] sales trends.

Well, again, I'm going to refer back to some comments that we made on the July call. We told you then that we did think that Industrial Products would remain challenged for the next few quarters. But it is interesting. When you take out the military orders from both the second quarter and the third quarter -- and second quarter was strong for military and third quarter was a bit weaker. But if you take out the lumpiness in the military orders for both the second quarter and the third quarter, for the segment, orders were actually up 15% sequentially. And we looked at that -- we saw that as a very, very encouraging sign.

But we also see that the core end markets, specifically infrastructure, construction, where we play in the energy space, those end markets still remain rather weak. We are cautious.

But then given that they're up sequentially, does that make you feel any different perhaps about 2010, especially if we get some stimulus money coming through eventually in the US that maybe we could see some upside in military in the Material Handling next year?

Well I'll tell you, sitting here today, and we've had lots of discussions over the last few months with the business leaders, we are not predicting a significant or even a material or measurable impact on our business next year from the stimulus spending. And --

We'd like to see a few more --

And industrials, Industrial Products. And we would like to see a few more data points.

No, that's fair enough.

And then just a final question for me, it looks like the orders within Energy are tracking quite nicely with the natural gas prices as you might expect. Just wondering, given that nat. gas prices have gone up in the early part of October, has that trend continued?

It's easier to track our business with the rig counts than it is a direct correlation with either oil or gas pricing. The pricing is hard to forecast. The rig counts have -- the rig counts during the third quarter from the end of June to the end of September I think were, here in North America, were up about 12%. And that's reflected in our order book during the third quarter. We are still of the position that this energy platform is going to move sideways for the next two or three quarters.

Okay, very helpful. Thanks.

John Inch, Merrill Lynch.

So I also got on the call a little bit late. Apologies. So I can sort of see some people chirping on the book-to-bill sort of sequentially declining a little bit. It looks like that obviously is Mobile Equipment and Engineered products. And I apologize, you probably went over this. So you're saying that in Mobile Equipment, it's military. What was the -- was there anything else? And what was the issue with respect to Engineered products and just how should we be thinking about this overall?

Well, if you were to roll out the lumpiness in the military business and Industrial Products, I think that answers your question.

Right, so it's up 15 basically on a bookings basis, right? Okay.

Yes. And engineered products are within the Engineered Systems segment. It's all related to seasonality that we see both at Hill PHOENIX and SWEP. And it's very -- it's pretty normal.

Okay. Right, but doesn't the book-to-bill ratio sort of adjust for that? The question almost comes down to, did you have more revenues, is there a little bit of lumpiness? Is there a deferral waiting for the next couple quarters? I think even at your analyst meeting, you mentioned Wal-Mart's fiscal is January, right? So the incrementals may not come until you pass that point, just based on the way that company specifically places its orders? Just any kind of color would be kind of helpful other than just seasonality.

I'm not sure I can give you much more color on that one than I already have, John. I don't want to comment on a specific customer, number one.

The order rates in the third quarter at Hill PHOENIX and at Hill PHOENIX and Tyler combined, were off a little bit from the second quarter, but that's rather typical. Now, in any given year, you may see the order rates start to soften in September and the next year it may be August and in the third year it could be October. We are just saying what we're seeing right now is rather normal.

Okay. So you did not see the book-to-bill in Engineered products to be a red flag? That's what you're saying.

It's not a concern and it's not a red flag.

Okay, great. I want to ask you about tech then. So if you X out Knowles and I guess focus on more cyclical businesses like Everett Charles, Bob, could you talk a little bit about your restructuring effort this year to align costs? And presuming that these trends that everybody is obviously seeing within the tech world globally continue, what kind of operating leverage should that translate to? Well I guess one is the question of the timing of when that ultimately hits those businesses from a demand perspective. And two, what kind of operating leverage, given the focus of restructuring that's been there, would you prospectively expect to realize?

Well, gosh, it sounds like you're asking me to comment on 2010, John.

Just call it, if you want to pick a normal cycle, never mind whether it's 2010 or not, but just normally, as you've restructured the business, how much emphasis there? And then as you are seeing trends, what should that -- what and when should that ultimately translate into improvement there?

If we, indeed, are, and I think we're all being a bit cautious here. We'd like to see some -- a few more data points. But if we, indeed, are on the early days of another up investment cycle in Electronics assembly, I think the focus the guys have had in the first half of this year to not just take some costs out, but sort of restructure the model, we would look at upside leverage within electronic assembly, being in the 40% to 45% range. And that's a few points higher than we would have had two years ago.

And that's because of restructuring?

That's because of restructuring and the changing of our cost model. We've moved much more of our manufacturing footprint this year to China.

Okay. Last question. I know there's a lot of moving parts at Dover, but if you were to look at your businesses and maybe pick off the ones that are a little bit more coincident with respect to economic activity, what kind of trends are you seeing there? Are you seeing some of the other sort of housing-related and shorter-cycle economic trends that some of the other industrial companies are realizing in terms of progressive improvement?

Well, the businesses within our portfolio that would have any benefit at all from improvements in the housing industry would be those related to our construction and infrastructure businesses within Industrial Products. And it's not the construction piece of it itself. It's the ground prep. It's the equipment work. We are not seeing -- we're just not feeling any benefit as of yet from any uptick in housing.

Okay. Any other areas of -- you've obviously seen what's going on with respect to the ISM and other manufacturing activity. Are there any other areas that you may be seeing improvement?

No, I think it's been reflected in the sequential order rate improvements in the third quarter. I think the activity within Engineered Systems and within Fluid Management was quite promising, and I would connect that as your correlation.

Okay. That's very helpful. Thank you.

Alexander Blanton, Ingalls & Snyder.

Good morning. I'd like to ask you about 2010 in this way. What worries you the most about the outlook for the economy and for capital goods spending in general going forward through the next year?

Wow, do we have an hour? Well, I think as I've sort of tried to weave into my earlier comments, we feel very positive and encouraged with the sequential order growth we saw in the third quarter. And, Alex, we are seeing those order rates continue at least into the early part of the fourth quarter.

But with respect to 2010, what type of recovery is it going to be, and is it going to be broad-based? And I would tell you that we are reading the same data and looking at the same reports as you are and we are not sure yet. You look inside Dover, and the two areas that I still feel are challenged with respect to sequential revenue growth over the next two to three quarters, I've already commented on, and we're going to -- we will be watching our energy business quite closely, but as of right now we still look at that going sideways for the next few quarters.

And for the most part, the commercial activity within Industrial Products, we see going sideways for the next couple of quarters. We are still in our planning process for 2010, and beyond those comments, I'm probably not going to share much on 2010 at this time.

Well, does this make you cautious about your own rate of capital spending going forward? I mean how do you feel about --

Are you referring to acquisitions or to CapEx?

No, no. CapEx.

Actually, I don't have the breakdown here in front of me, Alex, but I would sort of anecdotally, I would say that the CapEx spending that we have done in 2009 has been very targeted and very specific. And as an example, Knowles, it has been -- we have funded some capital projects at Knowles. We will continue to fund capital project at Knowles to support capacity expansion. And I am not concerned about the CapEx spending that we have committed this year.

Okay. And finally, the China business, do you see that as serving mainly the domestic market in China, or lowering costs of manufactured products that you are exporting from China or both? Where is the emphasis for you?

Well, I would say both. However, if you look at the business activity we have in China today and last year and the year before, Alex, about 80% of the revenue for us -- our revenue in China -- has been to support export activity, not just our export activity, but our customers' export activity. And as we move forward, we all do understand the opportunity and we are committed to this to expand what we do in China to support the local consumption. But as of, for the last three years, about 80% of our revenue has been to support export activity.

Okay. Thank you.

Steve Tusa, JPMorgan.

Just have a question on the organic growth comp; so you are maintaining your organic growth guidance. You're down I think mid-20s so far, year to date. So you're thinking about kind of a consistent fourth-quarter organic growth rate versus the third quarter, yet your comp here, it was up three in 3Q '08 and down six in 4Q '08. Is this just looking at -- should we really just be looking at it sequentially? Or is there a lumpiness in some of the businesses that shouldn't make much sense when it looks at the year-over-year comp? I'm just curious if you could flesh that out a bit.

I'll give you a top-line sort of high-level response and Brad may want to add a detail or two here.

Or maybe business mix, I don't know.

Yes. If you look at the third quarter -- let's talk about revenue. If you look at the third-quarter revenue for Dover, we actually see the third-quarter, activity with the exception of two businesses -- we see the third-quarter revenue activity remaining flat into the fourth quarter. No fall-off, but we're also not predicting any sequential increase in those businesses. The change in the fourth quarter, the change in the fourth quarter and what we are sharing with you on top-line revenue is 90% around Hill PHOENIX and SWEP, and it's all due to seasonality.

Got you. But wouldn't have that been reflected in the fourth quarter of last year too?

Well, you've also -- as I commented earlier, it doesn't always start to change on the same month. One year it may be August, the next year it may be September, the next year it may be October.

But you also have to appreciate that the seasonality impact for Hill PHOENIX relative to Dover is a little bit larger now because of the Tyler acquisition.

Right, right. That makes a lot of sense. When you look at pricing for the Company, I'm not sure if you disclosed this somewhere, but what was total price for the Company?

What do you mean by the --?

Price year-over-year? Price for the Company, was it -- sorry?

For the year, we said earlier --

Year over year, third quarter.

Third quarter, the price impact was, if I think about, let's see -- figure about $0.02 year over year.

Okay. So we can back into what that was on a revenue basis?

Yes. You know and --

And that's just price; that's not raw materials costs, right?

Well, that's both. That's both.

Oh, so that's the price cost spread is two pennies?

The price decrease year over year is $0.02.

Oh, price decline year over year?

Yes.

How much was that?

$0.02.

Okay. And raw materials were flat? Do you see what I'm saying? There's $0.02 of spread?

No, let me -- let's break the two questions. Price impact; forgetting the price cost spread; just price impact we are saying had an impact third quarter of about $0.02.

Okay. And then --

Price cost spread was still slightly positive in the third quarter.

Okay, got you. So it's somewhat similar. And then, above -- was Energy above or below that spread? How much price did you get in energy?

Oh, gosh. I don't have that detail, Steve. I don't.

Okay. But those margins held up well, and given that you think it's going to be stable over the next few quarters, you think that those margins are sustainable in the high teens?

Very high teens.

Okay.

In fact, I commented during the script that for Dover -- for Fluid Management, third-quarter margins expanded 80 basis points sequentially. And Steve, I will tell you that the improvement at Fluid Management on margins was all from Energy.

Yes. That's a good result. Appreciate the time. Thank you.

Thank you, Steve.

Thank you.

All right. Thanks a lot for joining us on this conference call.

I would like to remind our listeners of the upcoming Investor Day in New York on November 16. If you can RSVP if you haven't done so, we would appreciate it. Also, you can feel free to contact me if you need additional information about the event.

With that, we would like to thank you for your continued interest in Dover, and we look forward to speaking with you next quarter.

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