道爾 (DOV) 2014 Q1 法說會逐字稿

Good morning and welcome to the first-quarter 2014 Dover Corporation earnings conference call. With us today are Bob Livingston, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and CFO; and Paul Goldberg, Vice President of Investor Relations.

(Operator Instructions)

As a reminder, ladies and gentlemen, this conference call 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, Jackie. Good morning and welcome to Dover's first-quarter earnings call.

Today's call will begin with some comments from Bob and Brad on Dover's first-quarter operating and financial performance and follow with an update of our 2014 outlook. We will then open up the call to questions. As a courtesy, we kindly ask that you limit yourself to one question with a follow-up.

Please note our current earnings presentation, form 10-Q, investor supplement can all be found on our website, www.dovercorporation.com. This call will be available for playback through May 1, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-585-8367. When accessing the playback, you will need to supply the following access code: 22393135.

Before we get started, I'd 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 by referring to our forms 10-K and 10-Q for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statement.

We also 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. And with that, I'd like to turn the call over to Bob.

Thanks, Paul. Good morning, everyone. Thank you for joining us for this morning's conference call.

Our first-quarter results were highlighted by strong revenue growth, broad-based bookings growth, and building momentum as we move through the quarter. Most notable, fluids delivered 26% growth, and engineered systems grew 7%. In all, we generated 7% revenue growth and grew EPS 9%.

From a geographic perspective, our US markets were strong. Our European markets continued to show improvement for the third consecutive quarter. Lastly, our China markets moderated sequentially.

Now let me share some specific comments on the quarter. In energy, we continued to benefit from improving well activity and a modestly increased rig count, especially in the US. We should continue to see broad-based growth as the year unfolds, driven by increased well completion.

Our bearings and compression markets were very solid and should remain so for the balance of the year. Overall, energies results were in line with our expectations going into the quarter.

Within our engineered systems segment, we saw strong growth across both platforms. In our printing and identification platform, solid growth in both our fast-moving consumer goods and industrial markets, complemented by acquisitions, resulted in strong performance. The industrial platform also saw a broad-based revenue growth lead by outstanding results in our leased handling and vehicle service markets.

Our fluid segment outperformed, where our recent acquisitions plus healthy market conditions for both pumps and fluid transfer resulted in very solid revenue growth. Our pumps businesses are benefiting from strong demand in the plastics and petrochemical verticals, and first-quarter results were boosted by strong project shipments into these markets.

Our refrigeration and food equipment segment results were solid, though slightly below last year and our expectations, as the timing of customer projects impacted the quarter. Our bookings were very strong, giving us confidence in this segment's growth plan for the full year. Across the segment, our customers continue to seek our productivity, energy efficiency, and merchandising solutions that enable them to better complete in their markets.

In all, we were pleased with the start of the year. Business activity was strong, and we executed well in our strategy.

We continue to focus on growth through international expansion and acquisitions. The most notable initiatives were adding resources for artificial lift in Australia and the Middle East and the acquisition of companies in the digital print space.

Regarding near-term business activity, we expect ongoing solid performance in energy driven by the continuing increase in well activity, continued growth in engineered systems driven by improved US industrial trends and expanded global sales and service resources in printing and identification. Strong results in our fluid markets on the benefits of a recent acquisitions and generally healthy global end markets, and greatly improved sequential results in our refrigeration and food equipment markets. Beyond these near term trends, macro trends such as improving US industrial activity and continuing recovery in Europe will also help drive growth given our geographic business mix.

In addition to an improving macro environment, we have ample opportunity to improve margin. We are working to drive synergies on our recent acquisitions and are increasing lien and productivity projects.

As a result, we do expect stronger margin in the back half of the year as we continue to execute on these plans. Our pipeline remains active, and we are working on several small to medium size deals.

In summary, I am very pleased with our results. The combination of a strong first quarter, growing bookings and backlog, and our positioning with customers give me great confidence that we will have an outstanding year. With that, let me turn it over to Brad.

Thanks, Bob. Good morning, everyone. Let's start on slide 3 of our presentation deck.

Today we reported first-quarter revenue of $1.9 billion, an increase of 7%. Organic revenue grew 4%, and growth from acquisitions was 3%. Adjusted EPS was $1.01, an increase of 9%.

Segment margin for the quarter was 16.7%, a 40 basis point decrease from last year. This result reflects solid execution in our core business and was in line with our expectations. Margin was impacted by recent acquisitions in three of our four segments and, in all, had a 70 basis point impact in the quarter.

Bookings increased 5% over the prior year period to $2 billion. This result represents 20% growth in fluids and 11% growth in engineered systems. Bookings increased 2% in refrigeration and food equipment.

Energy bookings decreased 7%, primarily driven by tough comps on a large international artificial lift project. Adjusting for this project, energy bookings increased 5%.

Overall book-to-bill finished at 1.09, which is in line with seasonal trends. Backlog increased 7% to $1.5 billion.

Now turning to slide 4. Fluids grew 14% organically, driven by strong markets and project related activities in plastics and petrochemical. Energy grew 4% on the strength of drilling activity.

Engineered systems also grew 4% with broad-based growth across both platforms. Refrigeration and food equipment declined 3%, largely the result of project timing with our customers.

Overall, organic revenue growth was 4%. Acquisition growth in the quarter was 3%, comprised of 11% in fluids, 3% in engineered systems and 1% in energy.

Now turning to slide 5 and our sequential results. Revenue was essentially unchanged from the fourth quarter where strong sequential growth of 5% in energy was largely offset by a 4% decrease in refrigeration and food equipment. Sequential bookings grew 8%, largely in line with our normal seasonal pattern, as all segments showed growth.

Engineered systems bookings growth was 11% broad based across both platforms, and refrigeration and food equipment increased 10%, driven by normal seasonality in our refrigeration markets. Energy bookings increased 9% with growth in all end markets. Lastly, fluids bookings were up 3%.

Now on slide 6. Energy revenue of $479 million increased 4%, and earnings of $119 million were unchanged. Energy produced another solid quarter with revenue growth in both our drilling and production and bearings and compression end markets.

Within drilling and production, growth was driven by improving well activity, especially shale related, though partially offset by weak winch markets. Operating margin of 24.8% was down 90 basis points from last year, in line with our expectations.

Bookings were $478 million, a 7% decrease from the prior year. Solid growth in bearings and compression was offset by tough comps in drilling and production, principally reflecting lumpy orders related to a large international artificial lift project.

As reported, book-to-bill was 1. Adjusting for this project, book-to-bill was 1.04, representing 5% growth.

Now turning to slide 7. Engineered systems had an excellent quarter, where sales increased 7% to $650 million and earnings of $92 million were up 11%. Our printing and identification platform revenue increased 11% to $264 million, driven by broad-based organic growth of 5% and recent acquisitions.

In the industrial platform, revenue grew 5% to $386 million, reflecting 4% organic growth. Our waste handling and vehicle service markets were particularly strong in this platform.

Continued strong execution and cost reduction activities drove operating margin to 14.2%, up 40 basis points, reflecting solid leverage on volume. Bookings were $710 million, an increase of 11%.

Our printing and identification bookings increased 19% to $283 million, boosted by recent acquisitions and strong execution in the US and China. Industrial bookings increased 5% to $428 million, reflecting broad-based growth.

Book-to-bill for printing identification was 1.07 while industrials was a strong 1.11. Overall, segment book-to-bill was 1.09.

Now on slide 8. Fluids posted an excellent quarter, where sales increased 26% to $345 million and earnings of $58 million were up 22%.

Revenue was driven by strong organic growth of 14% across the segment, with particular strength in our oil and gas and plastics and petrochemical end markets. Our five recent acquisitions contributed 11% growth.

Segment margin was 16.8%, a decrease of 60 basis points from the prior year. Recent acquisitions aside, our core business performed extremely well in the quarter and achieved 20% margin on strong volume leverage. We expect overall segment margin to improve in the coming quarters as we progress on the integration of these recently acquired companies.

Bookings were $363 million, an increase of 20%, driven by continued solid demand across most end markets and recent acquisitions. Book-to-bill was a solid 1.05.

Now let's turn to slide 9. Refrigeration and food equipment generated revenue of $411 million, down 3% from the prior year, and earnings of $45 million, a decrease of 14%.

Revenue was impacted by the timing of orders in both refrigeration and food equipment markets, especially early in the quarter. As the quarter progressed, refrigeration shipments began to accelerate. We expect that momentum to continue into the seasonally strong second quarter.

Operating margin decreased 140 basis points to 10.9%. This result reflects good execution on lower volume and $5 million of one-time items in the prior year.

Bookings were $494 million, an increase of 2%. Book-to-bill ended at a seasonally strong 1.20.

Now going to the overview slide on page 10. First-quarter net interest expense was $33 million, up $2 million from last year and in line with expectations. Corporate expense decreased $3 million to $31 million, largely reflecting reduced pension expense.

Our first-quarter tax rate was 30.7% excluding discrete tax benefits, in line with our prior forecast. Capital expenditures were $33 million in the quarter. Lastly, we repurchased 3.6 million shares for approximately $293 million in the quarter, completing our $1 billion program.

Moving to slide 11. Our guidance remains unchanged. We continue to expect 2014 organic revenue growth to be broad based at 3% to 4% with all segments prior forecast on track for the year.

Completed acquisitions will add 3%. In total, we expect full-year revenue growth of 6% to 7% and segment margin to be about 18%.

Corporate expense will be about $123 million; interest expense remains $133 million. Our full-year tax rate is anticipated to be around 31%. CapEx should be about 2.5% of revenue, and we expect our free cash flow will be approximately 11% of revenue.

Now turning to the bridge on slide 12. The bridge is largely consistent with our last forecast. We've increased acquisitions slightly to reflect our recent activity.

We have also made minor adjustments in a few other categories now that we have a quarter of actuals behind us. In total, we expect 2014 EPS to be $4.60 to $4.80. This represents 9% growth at the mid point. With that, I will turn the call back over to Bob for some final thoughts.

Thanks, Brad. 2014 is off to an excellent start. We delivered solid revenue and earnings growth and also saw strong quarter activity.

Overall, I like our positioning in our served markets, and we continue to execute on our growth initiatives, some of which are -- Within our energy segment, you will see the continuing push to grow outside the US, especially in artificial lift. We also have ample opportunity to grow our core business by expanding our presence in faster-growing basins, and increasing our application coverage in bearings and compression.

In engineered systems, we plan on expanding our verticals served in printing and identification beyond our core fast-moving consumer goods and industrial markets. Our strategy in the industrial platform is all about delivering customer productivity solutions. The focus is on reducing labor, improving safety, and ultimately allowing our customers to compete more effectively.

Fluids has a large opportunity to expand into international markets and is targeting significant growth in markets outside North America and Europe. In addition, fluids intends to push their station in a box retail fueling solution, expand their hygienic pump presence, and pursue cross selling opportunities into the North American plastics and oil and gas markets.

In refrigeration and food equipment, we are pursuing a growth strategy that targets our customers' needs for productivity, energy efficiency, and enhanced merchandising systems to drive performance. As an example, we launched a reengineered refrigeration door package which will provide an even faster payback to our customers on close-the-case projects. In addition, several of our businesses are releasing new products, especially in food equipment, which will enable us to expand on our already strong positions.

In all, I am more confident than ever about our positioning and long-term prospects. In closing, I'd like to thank our entire Dover team for their continued focus on serving our customers and driving results. With that, Paul, let's take some questions.

Thanks, Bob. At this point, I'd like to remind everybody, if you can limit yourself to one question with a follow-up, we will be better able to serve all of the people that want to ask questions. And Jackie, if we can have the first question?

Our first question comes from the line of Julian Mitchell with Credit Suisse.

Hi, good morning.

Good morning, Julian.

I just had a question on refrigeration and food equipment. You had margins down a fair amount in Q1, but at the same time, you talked about sales trends improving in recent months. So I just wondered how comfortable you were with the outlook for a flattish margin for the full year in that segment.

Actually, the order activity in refrigeration and food equipment was quite healthy in the first quarter. And as we look at the second quarter, second quarter starts the middle of the year seasonal ramp, especially for Hill PHOENIX.

And I would tell you that we are very, very well loaded at Hill PHOENIX for the second quarter. And I feel pretty confident on their plan both on revenue and margins for the year.

Your specific question about margins in the first quarter, if you were to back out -- and Brad commented on this in his script -- if you were to back out of the first quarter of last year, I think it's the $5 million of one-time net gains. The first quarter margins are pretty similar to last year, and we feel very good about our plan here in this segment for the year.

Got it, thanks. And then within -- just my follow-up is on the energy business.

You talked on the last call about weakness in sucker rods in parts of the US. I just wanted to check if that weakness has all abated now and how you're feeling about your forecast for the year on energy in terms of the rig count.

Okay, so you've got two questions there. Rig count and sucker rod activity. Sucker rod activity here in the US recovered nicely.

And I don't know what the growth rate is year-over-year or sequentially. That's getting into some detail here. But we were quite pleased with the artificial lift activity in the US, especially around sucker rods in the first quarter.

Rig count, we came into the year looking at a rig count average for the US of -- I think it was 1760 some units, essentially flat for the average with 2013. Its been up a bit, and I'd call it the second half of the first quarter and coming into April, up above our expectations for that period.

We've actually raised our average now for the year to almost 1800 units, about a 2% increase. And we're feeling pretty positive about the energy outlook for the balance of the year.

Great, thank you.

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Hi, Joe.

Good morning. So my first question is on fluids.

If I heard you correctly, I think the organic growth for the quarter was 14%, and it was driven predominantly by petro chem and plastics growth. But then your guidance for the year is 4% to 5% organic growth.

So clearly it implies a pretty significant step down. And so just help me understand that a little bit.

I think you just summarized it quite well, Joe. We had a great first quarter. The organic growth rate as you said was 14%.

Don't expect that from us in the second, third and fourth quarters. I think the balance of the year is going to be a little bit closer to our guidance for the year.

I would tell you that performance in the first quarter on revenue, and supported by the booking activity in the first quarter, would perhaps want to see us increase our forecast for the year, and I'm reluctant to do that at this point in time. I'd like to see how the order rates develop here through the first half or at least April and May here in the second quarter. But obviously with that first quarter performance, we feel quite bullish on fluids for the year.

Okay, that's helpful there. The follow-up on bookings, you had a good quarter -- I think the book-to-bill was 1.09. Was there any impact to that book-to-bill from the acquisitions that came through this quarter, or is that in organic book-to-bill?

No, that includes the acquisition, that includes the acquisition activity from 2013. Sitting here right now, Joe, I do not know what the organic book-to-bill was.

Okay, I can follow-up with Paul on that one, and one last question. Really on free cash flow, it seems like Q1 tends to be seasonally a pretty low quarter. It seems fairly weak this quarter, you guys did not change the guidance.

I'm just thinking about your free cash flow generation now as a standalone entity and how I should think of that moving forward. Is this 11% of sales the right way to think of free cash flow over the long term for you guys, or perhaps some color there could be very helpful.

Yes, well we agree with you the first quarter was a little bit lower than I think we would have expected going into the year, but that doesn't change our views about the cash generation of the portfolio and the Company. We do see sometimes impacts as revenue ramps up, ramps down you will see that too into the second quarter for normal seasonality, but we feel very confident in 11% of the year.

If you look at our profile, our profile is a Company that generates most of the cash come the tail end of the year. That's just the way the second and third quarters usually set up and the fourth quarter being lower than those and a high collection type of period for us. In the long run, we feel confident on that 11% number.

Okay, great. I will get back in queue, thank you.

Our next question comes from the line of Nigel Coe with Morgan Stanley.

Oh, thanks, good morning.

Good morning, Nigel.

So just going back to the book-to-bill ratio. 1.2 for refrigeration, very strong. Obviously it's always above 1 in Q1, but just in terms of standalone refrigeration on the new basis, 1.2, would you say that's normal or would we say that's better than what you normally see?

Maybe a bit better than the average. But let me share something else with you, Nigel, and I don't have this in all of the businesses, but I tend to watch this one pretty closely here in the first quarter.

Book-to-bill at Hill PHOENIX all-in, all of it Hill PHOENIX was a very healthy 1.3 in the first quarter. And I share that data point with you and others because my comment and my script was that we feel very, very confident about our upcoming -- we're into it now -- our seasonal ramp here with Hill PHOENIX in the second and third quarters. We see some nice things happening at this business.

So does that mean some of these retail projects that have been pushed in the second half of the year are coming through, and is there a read here for the broader US economy in your view?

Well, I would if you wanted to read on the US economy across the Dover business profile, I would probably point more to our industrial businesses rather than the retail grocery activity. Your comment -- your question here about some of the project deferrals -- Nigel, these were fairly modest.

I'm talking $7 million, $8 million or $9 million of business activity that we would have expected in the first quarter has been shifted to either second or third quarter. It's actually a rather modest number.

Okay, and then just wanted to come back to the comment on margins of 20% ex acquisitions. I believe that Q1 seems to be your lowest margin quarter from a seasonal perspective. Q1 and Q4 with Q2 and Q3 better, so I'm actually wondering--

I'd agree with that.

So once we get beyond this MA dilution, do you think that the 20% plus is a good run rate for maybe Q3 or Q4?

Well, I think I'd even commented on this on the January call, Nigel, when we gave our initial guidance. We still have a target for the year of 18% margins. The second half is going to be stronger than the first half.

The first half is truly taking some of the -- I call it the headwind from the early days and the integration cost of some of our recent acquisitions, but it's also carrying some of the weight of a couple or three large -- I call them productivity projects that we launched in the second half of last year and are really in -- I call it the execution mode in the first half. And that's around energy being one and refrigeration and food and equipment being the second one, but we remain quite confident with our second half outlook on an uptick in margins.

Okay, thank you very much.

Our next question comes from the line of Shannon O'Callaghan with Nomura.

Good morning guys. Maybe just one quick follow-up on that. Of this acquisition impact, how much of that in the fluid margins is permanent acquisition cost that's going to just remain in terms of amortization or otherwise in terms of the gap to the 20%?

Oh, my goodness, you're getting into the detail here. I'm going to have to defer to Brad.

Brad shared with you in his comments that absent the acquisition activity in fluids, operating margins were 20%. I would not label 20% as non sustainable or unsustainable with respect to the core business.

Now the acquisitions we've made, how many -- what is it, four or five in this segment just in the last nine -- or actually in the last six months. Each one of them is a little bit different. The profile of each is different, and the timeline of moving those recent acquisitions to the point where they are either neutral or perhaps even accretive to segment margins is a little bit different, but we did increase AD&A, obviously.

So maybe another way to answer it, because I don't have that data in front of me, is that the acquisitions in the first quarter specific to the total Company and in fluids, was dilutive to our EPS. And as we stepped through the year, it becomes accretive. And you saw in our bridge that we expect to have $0.05 to $0.07 of performance out of those acquisitions.

The key point is that the integration is going to take some time. And I would think in the fluids business we won't see the margins come up to more our level or our standard until 2015, so there will be a drag on those margins through the whole year.

Okay, in printing and ID, do you have any organic revenue and order numbers for printing and ID? And also just a little color on how you think you're doing after you've reinvested in some of the product portfolio there?

Okay, organic for printing and ID for Q1 was 4%. Actually, I would share with you, to me the real success story in printing and ID in the first quarter was Markem-Imaje. And Nigel, I'd share with you that organic growth at Markem-Imaje in the first quarter was quite healthy, 6%, and we were quite pleased to see where it came from.

We had some nice growth at Markem-Imaje in the first quarter and the US market and in the China market as well as South America. We continue to see the strength in Europe that we have seen over the past couple of quarters at Markem-Imaje, but the results in the first quarter were really lead by China and the US.

Shannon, just to be clear, in printing and ID, the organic growth was 5%, and the industrial platform organic growth was 4%. There was a little FX in there too, but that was the pure organic growth numbers.

Paul, do you happen to have any order?

I don't have that right now, but I will have it when we talk later.

Thanks a lot guys.

Our next question comes from the line of Jeff Sprague with Vertical Research Partners.

Thank you, good morning gentlemen.

Hi Jeff.

Bob, I wonder if you could just address managerial bandwidth now on the M&A front. For example, if I think about what's going on in fluid. Are those guys full up on what they can handle for a year or two, or are you still comfortable doing deals in there, or should we expect your activity to be oriented somewhere else in the portfolio?

Well, our pipeline is fairly well spread among the segments, but Jeff, included in our pipeline, we've got some deals that we are pursuing in the fluid segment. The acquisition activity -- they're smaller ones -- but the acquisition activity in fluids over the last six months or so has actually been fairly well split between our pumps businesses and our fluid transfer businesses.

It's not all with one Management team. We do have more bandwidth for acquisitions.

And we should expect you to modulate between share repurchase and deals this year depending on the pace at which deals materialize? Is that a fair statement?

That's a fair statement.

And finally for me, could you just address pricing in Hill PHOENIX? If you said anything, I missed it, but with this pace of order activity, is there actually some positive price in the business and to what extent?

Gosh, my comment wouldn't even just be restricted to Hill PHOENIX, Jeff. I would tell you across-the-board for Dover, I would label pricing as pretty darn neutral. Neutral overall.

Okay, thank you.

And including with Hill PHOENIX. But I would say that would be a fairly standard comment that we would use with all four segments.

Okay, thank you, Bob.

(Operator Instructions)

Our next question comes from the line of John Inch with Deutsche Bank.

Thank you, good morning everyone.

Hi John.

Good morning John.

Just as a follow-up on the pricing point, would that apply to the backlog as well? Was there any discernible price notation within the backlog with the segments?

No concern on pricing, John.

You mentioned Markem-Imaje in China was good. What moderated in China?

Because it seems that what's happening in China is less about macro and it's more Company specific, so some are better some are worse. Could you provide a little more color on what you're seeing there?

I don't remember our organic growth rate in China. I know our all-in growth rate in China was I think 6% for the quarter. Wow, still pretty healthy, but for us, it's a bit of a moderation.

And I would tell you that when we define it as a bit of a moderation, we're going to describe some project shipments on food equipment, especially around some of our can making equipment that was absent in the first quarter. And we saw some nice activity in that business area in 2013. You look at the other businesses that are quite active for us in China, be it Markem-Imaje, be it some of our fluid businesses, activity was pretty solid.

That makes sense. Bob I think you were at a conference recently and mentioned that energy and refrigeration could outperform your organic growth targets. Energy makes sense, but what about refrigeration?

I realize you made earlier comments this call that you'd see a better line of sight to improvement as the year progresses, but we are down -- we have a pretty low start for the year. Can you add to what's your confidence there?

Okay well don't -- I would caution you to not overreact to a negative revenue comp number for the first quarter for this segment. We've seen that before, and it's not unusual.

I look at energy, and I see the rig count and drilling activity, especially in the US, being a little bit healthier and stronger than we had embedded in our forecast and our guidance at the beginning of the year. And that gives me a little bit of confidence that maybe there's a tail wind behind our forecast for the year there than we had believed was there at the beginning of the year.

And our refrigeration and food equipment segment, I'm going to tell you just let's see how the second quarter unfolds here. We are watching pretty closely our order rates, and I will repeat myself. I feel very bullish on their opportunities for 2014.

That's fair. One final one for me. The drivers of energy globally seem pretty good, artificial lift, Middle East, the well count that you described.

Big picture there's a perception that your energy margins admittedly are very robust and very healthy, but they just don't have a ton of upside. Why again is that the case?

If you've got really solid organic growth coming through, is it -- just remind us -- is it mix, reinvestment back into the business? Because I know you're restructuring at Norris to get cost benefit, why just big picture, Bob or Brad, do energy margins not go higher over time?

Brad could give you a more detailed response than I'm prepared to give you, but I think we've been sharing this message around margins with the energy business for at least 18 months now that we've got plenty of opportunity and we pursue these opportunities to increase our operating margins within the segment at the individual businesses. You will see some noise from quarter to quarter or from period to period based upon product mix, but we continue to have opportunities to increase the margins. We are flowing a significant part of that margin improvement back into -- I will call it people investment and geographic growth initiatives within energy, and John, you will see us continue to do that for the next couple of years.

Thanks very much guys.

Our next question comes from the line of Nathan Jones with Stifel Nicolaus.

Good morning Bob, Brad, Paul.

Hi Nathan.

If we could go back to -- Bob, in your prepared remarks you talked about new product releases in food equipment. I'm wondering if you could give us more color on what they are, what the timing of that's likely to be and when you think that will have a positive impact on results.

Within unified brands -- again this is in the food equipment space, not in the refrigeration space -- within unified brands, we've got two different product launches that I can think of sitting here that rollout this year that are both for the fast food restaurant activity. And I would tell you on one of them we've actually, we believe we've won a $12 million order placement. It won't all flow through this year, but we will see the beginning of this order flow here in the second half, and it's a pretty positive impact on unified brands.

Great, and just on the productivity projects that you talked about in energy and food equipment, is there any quantification you can give us for that? And is this something that would be unusually large for Dover, or is this just something that is part of the regular course of doing business?

Well, I wouldn't label the benefit of the projects to be unusually large for us. The projects themselves were probably a little bit larger in scope than what we've seen over the last couple of years, but I think I've shared this at least on one or two other calls in recent quarters.

One of the big projects was a new facility construction in the Houston area for our energy segment that will be the primary location for one of the businesses in energy. But it will also house the Houston operations of three or four other Dover businesses, and the project by the time we finish it, we end up reducing roof count in the area by four or five roof counts.

We've done similar project within refrigeration, especially around Hill PHOENIX, and again a large building project in the Atlanta area. It's complete. We're starting to occupy the facility now, and when the project is complete, it will be the primary location for the systems business of Hill PHOENIX, the East Coast operations for Anthony and the show room and headquarters for one of the other businesses in that segment.

Again, the project scope on both of them is a little bit larger than we typically see within Dover. The benefits -- I don't remember the exact benefits on both of them, but we're looking at I think in the range of $2 million to $3 million or $4 million of annual benefits on each of the projects.

Great. Thanks very much.

Our next question comes from the line of Jamie Sullivan with RBC Capital Markets.

Good morning.

Thanks. Just on energy, maybe you can just talk about -- you talked about the large order last year in Q1. Are there other orders we should think about that happened in 2013 as we look at the comps? And Bob I think you'd talked about the potential for some large orders in Australia coming at some point this year, maybe your confidence there as well?

Okay, so this question is specific to the energy segment?

Correct.

Okay, so Brad commented on the large order we had for Australia that we booked in the first quarter of last year, and Brad, you're going to have to help me. I think that order in the first quarter of last year was $60 million, but there was a second order last year for the Australian lift project that I think occurred so like July, had to be a third quarter activity.

I have to confess, I really don't remember the size of that order, but I think it was about $40 million. And if you look at the activity for 2014 specific to this Australian project, the next large order award is anticipated to be made in the latter part of this year. We think it's going to be in the fourth quarter, and we were, we think our performance as well as some of the people investments we've made in the first quarter have continued to position us quite well to continue to serve that customer.

I would just add to that, just an observation that the orders are lumpy, but the sales are very steady.

Oh, that's true for sure.

Thanks and then maybe just a follow on with capital allocation. I think you mentioned there could be some balance between buyback and M&A. Is that going to be more opportunistic, or should we expect an ongoing program with buyback?

Okay, look. I think we probably would give you a little bit more definitive guidance here on share repurchase activity as we get through the second quarter and understand how the pipeline, our acquisition pipeline will develop and execute this year. But don't lose sight of the fact that we do have an open and outstanding share repurchase authorization as we sit here today.

We did complete the $1 billion program in the first quarter, but our open authorization as we sit here today is just a shade under 4 million shares. You will see us use that during the year to keep the existing share count flat if not tweak it down a bit, but that's how we normally manage that. Anything beyond that activity, I think you've got to wait for us to see how the acquisition pipeline develops over the next three or four months.

Thanks, and that's not -- you aren't assuming future buybacks on the guidance, correct?

No. Correct, we are not assuming future buybacks.

But you do know how the weighted average will flow through the year will naturally take down the share counts throughout the year, having completed the billion dollar buyback in the first quarter. That's just simple averaging.

Thank you.

Our next question comes from the line of Charley Brady with BMO Capital Markets.

Hi Charley.

Good morning guys. I don't know if I missed it or not, but on the energy side, did you give the bookings broken out by the drilling production and the bearings business?

No, we did not give that, and my goodness don't ask me for it. I don't have it.

Fair enough, and just on the fluids business, in your prepared remarks you talked about a lot of some of the growth opportunity and the expansion going on. It sounded as though that was a fairly significant focus, maybe more than its been previously to my recollection. Is that -- are you focusing on organic there or is that going to be primarily done by M&A or is it split fairly even?

No, the comment that I had in my closing remarks about the focus on growing fluids -- significant growth outside of Europe and North America, that comment is based upon our existing product portfolios within that segment today.

Keep in mind that the five acquisitions we did in that space are all international deals that we did and completed.

And a key part of this. And a key part of our drive for more international growth.

Okay and then just one more on your comment on M&A. Can you just remind us when you define small, medium size deals what range you're looking at within those buckets?

Well let's just put it this way. I would define the top end of a medium size deal to be $250 million or $300 million.

Great. Thanks.

Our next question comes from the line of Deane Dray with Citigroup.

Thank you, good morning everyone.

Hi Deane.

Following the Knowles spin, can you comment on any stranded costs and then what are you thinking about in terms of any other portfolio clean ups that might be next in priority?

Let me take the first one.

Brad can handle stranded cost.

Well we've commented on this in the past, and I would say we estimated overhead or stranded cost to be in the range of somewhere between $20 million and $25 million. We have ongoing efforts to take out cost, but what we've said was that some of those costs relate to the very sizeable resources we have internationally that we intend to retain.

Even though the Knowles was broadly international, we will continue to keep those resources in place as we want to grow into more into international, grow into the overhead. So the way we think about it is our goal is to take out about $10 million of those stranded costs, and I think we're well on our way of doing that.

And then for other portfolio clean ups?

Look, we're looking to get the closing here by the end of this quarter or during the second quarter on the sale of our deck business in the UK. Beyond that, we have no processes on divestiture under way, but Deane, that's an ongoing discussion with the management team as well as with the Board. Over the next couple of three years, I think it would be normal and expected to see us continue to narrow the scope of Dover, but don't expect -- we have nothing under way at this moment.

Great, and just last one for me is go back to the energy side. I don't mean to pile on, but just a comment about the increase in rig count expectations.

And it just brings up this myth that still persists at Dover that you're so tied to rig count. And it seems as though the industries changed to where you should be focusing more on wells per rig, but Bob, maybe you can just address that?

Well, the wells per rig is -- well completion is actually the better statistic and metric especially around artificial lift, Deane. For the drilling activity, rig count is still a good number to look at for drilling activity, but for artificial lift and production, it is more around welcome please. The wells completed per rig, you're going to see some variation on that depending upon the Basins you're looking at here in North America, but it still to us is an indicator of the activity that's going on in the North American energy space.

Great, thank you.

Our final question comes from the line of Walter Liptak with Global Hunter.

Good morning, thanks. I wanted to -- listening to the call, everything sounds pretty positive across-the-board, printing, fluids, refrigeration, energy, and I just wanted to get a little bit more color on your view for guidance and why you didn't at least take up the low end of guidance or what could go wrong in 2014 that you're concerned about.

You're asking why I didn't take the guidance up?

Yes.

I'd actually like to get through the bulk of the second quarter before we actually have a real serious discussion internally about that. I would like to see what the order rates are for April and May.

I will tell you that we look at our range of $4.60 to $4.80, folks, I will tell you what we're focused on. We're focused on the top end of that range, not the mid part of that range.

The bottom end of our range, we could -- I will plead guilty to that that we could have had a very serious discussion about increasing the bottom end of our range. But again I'm going to say let us get through and see at least what order activity is for April and May, and we will have another discussion on that at the end of the quarter or on the July call.

Okay good. That's very good color.

But I will tell you again what we're focused on. That's the top end of the range.

Okay, if I could just do a follow-up on the energy, I didn't hear you talk about how it trended through the quarter, January, February, March. And usually when this market picks up, it can pick up a little bit quicker. Wonder if you could just comment on that.

I don't have that data here in front of me, but my recall is that it was fairly consistent through the quarter for energy.

Okay, and maybe just a last one. The winch market being down a little bit, is there anything wrong with that market, or is it just timing on orders?

Look, it's timing of orders and what I will call the oil field patch, but we also continue to deal with a head wind. You go back two years ago, and my goodness, 30% or 40% of this business was supplying winches for the military, and we continue to see that part of the business activity decline.

We're going to see another significant decline in it this year, but it will decline to the point in 2014 where if it declines any further in 2015, it's not comment. That's all I can tell you. It's getting down to some nits and nats in the military on that business.

Okay, good, thank you.

Thank you, that concludes our question and answer period. I'd like to turn the call back over to Mr. Goldberg for closing remarks.

Thanks, Jackie. Once again, we thank you for joining us on our conference call, and we look forward to speaking to you with our second quarter results. Have a good day and good weekend.

Thank you, that concludes today's first-quarter 2014 Dover Corporation earnings conference call. You may now disconnect your lines at this time, and have a wonderful day.