道爾 (DOV) 2026 Q3 法說會逐字稿

Good morning, and welcome to Dover's third-quarter 2026 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Chris Woenker, Senior Vice President and Chief Financial Officer; and Jack Dickens, Vice President, 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 this term, please disconnect at this time. Thank you.

I would now like to turn our call over to Mr. Jack Dickens. Please go ahead, sir.

Thank you, Leslie. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through November 12, and a replay link of the webcast will be archived for 90 days.

Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements.

With that, I will turn the call over to Rich.

Thanks. Jack. Good morning, everyone. Let's get started on slide 3. Overall, it was a solid quarter. Organic growth accelerated to 7%, led by our secular growth markets and supported by durable demand across the majority of the portfolio. Bookings were the highlight in the quarter. Orders were up 16% year-over-year, with growth in all five segments. Book-to-bill was 1.03 for the quarter. Our backlog is up 35% versus this time last year, which supports our confidence in the forecast and provides very good momentum heading into 2027.

Adjusted EPS was $2.88 per share, up 10% in the quarter. We remain active on the capital -- on capital deployment, announcing two bolt-on acquisitions that add complementary capabilities, low-cost manufacturing and geographic breadth to our businesses. We also repurchased over $330 million of our shares in the quarter. We are narrowing our full year guidance towards the upper end of the range, with organic growth of 5% to 6% and adjusted EPS and from $10.60 to $10.75 per share, representing double-digit growth consistent with our long-term algorithm.

Let's go to slide 5. Our secular growth markets now represent over 25% of our total revenue, up from 18% in 2024. Across the top of the slide, we show our expected growth rates in each of these markets this year. In total, these markets are a material driver of our overall revenue growth in 2026, and we expect that trend to continue in 2027. We have purposely built these platforms through R&D spending and new product development in our legacy businesses as well as through targeted M&A.

Our business model is unique. It allows us to pursue a variety of high-growth business opportunities across a range of secular themes, with several of our businesses participating in more than one. We have been able to deliver this growth by proactively adding capacity in advance to the market, which has allowed us to capture leadership positions. This has been particularly important in energy transition and power generation, CO2 systems, data centers and cryogenic components serving the energy and space markets. We have continued to invest in additional capacity in 2026 behind this demand strength, some of which we will detail in a subsequent slide.

These organic and inorganic investments have delivered high returns on invested capital despite the proactive upfront investments as the result -- as a result of high growth rates and margin profiles of these sectors. These businesses are technically demanding mission-critical applications where Dover tends to win. The vast majority of our acquisition capital over the past five years has been deployed in these markets, and they remain our top priorities from both an organic and inorganic investment.

Going to slide 6. This slide underscores the breadth and duration of our order book. Trailing 12-month bookings were up 16%, well ahead of revenue growth at 8, and trailing book-to-bill has climbed to 1.08. Every segment has grown bookings faster than revenue over the past 12 months. That sustained order momentum has underpinned the top line acceleration we are seeing in 2026, and it gives us confidence in our outlook going forward.

Importantly, our backlog is 35% higher than it was at this point last year and is up sequentially from Q2, with roughly half scheduled to ship in 2027. That gives us a solid foundation heading into next year with revenue visibility well ahead of where we would expect to be at this point in the planning cycle.

Moving to slide 7. Engineered Products was down 2% organically. Demand for aerospace and defense components remained strong, was more than offset by lower volumes in European vehicle services. Margin was stable on favorable mix and cost controls. Clean Energy & Fueling grew 12% organically, with solid shipments in new orders in clean energy components, fluid transport and North American retail fueling, which posted its strongest quarter in years.

Demand for our cryogenic components in LNG and space launch infrastructure remains healthy, with several recent high-profile project wins. Margin was roughly flat as volume leverage was offset by production ramp in cryogenic product lines where demand is running ahead of capacity. We're actively expanding that capacity with additional output coming online in the first quarter of 2027.

Imaging & ID grew 2% organically, led by double-digit growth in serialization software and solid performance in core marking and coding. Consumables and equipment margins expanded 400 basis points to 33%, driven by volume leverage on largely fixed cost base and software growth in consumables, favorable geographic mix and foreign currency translation.

Pumps & Process Solutions grew 1% organically, with growth in AI and energy infrastructure, single-use biopharma and industrial pumps that was partially offset by lower volumes in polymer processing equipment where quoting activity is high. Margin expanded 70 basis points to 34% and solid conversion in industrial pumps and precision components and a higher mix of biopharma revenue.

Climate & Sustainability Technologies accelerated to 18% organic growth in the quarter. Shipments and order rates in brazed plate heat exchanges remain robust across all geographies and major end markets, with notable strength in liquid cooling for data centers which is initially concentrated in the US, but we are now seeing meaningful acceleration in Europe and Asia. Lead times remain extended and we are actively investing to double our global capacity for large heat exchanges through 2027.

CO2 refrigeration systems posted quarterly revenue -- posted record quarterly revenue with September reaching its highest output of the year in refrigerated door cases. The investments that we have added in Richmond, Virginia facility are ramping up. Line rates exiting third quarter were 15% higher than the second quarter. We expect another sequential increase in line rates and output in the fourth quarter. We also completed the consolidation of the door frame production in Sylmar, California at the end of the quarter.

Segment margin was 18%. Margins in heat exchanges were robust as volumes outrun the significant investments in capacity build. With direct labor, less than 10% of its cost base, this business converts incremental volume exceptionally well. Those gains in heat exchangers were offset by cost of ramping production simultaneously across CO2 systems, specialty cases and refrigerator door cases ahead of higher demand and shipment rates in 2027, which is reflected in our backlog. Heat exchangers should continue to benefit from via leverage in 2027, with a good portion of Q1 revenue already in backlog.

In food retail, we have absorbed roughly $40 million of costs year-to-date from investments and extra labor costs associated with the production ramp along with duplicate fixed costs of running 2 facilities for the throughput of one. As line rates continue to ramp and as the roll-off of fixed cost accelerates through the balance of the year, margins in Climate & Sustainability Technologies are poised to improve meaningfully in 2027.

I'll pass it over to Chris.

Thanks, Rich, and good morning, everyone. Let's go to our cash flow statement on slide 8. Year-to-date, free cash flow was $703 million or 11% of revenue, up $72 million over the prior year, driven primarily by increased operating cash conversion which more than offset working capital investments to support accelerating top line growth.

Third quarter free cash flow was $383 million or 17% of revenue. We've taken up our full year CapEx guide for the year to reflect the organic investments we're making behind demand strength. Free cash flow accelerated in the third quarter, consistent with historical trends, and we expect a further increase in the fourth quarter, which is historically our highest cash-generating quarter. Our full year free cash flow guidance remains on track at 14% to 16% of revenue.

With that, let me turn it back to Rich.

Okay. I'm on slide 9. Organic investment remains our highest return use of capital. On the left are our most meaningful projects. In support of our organic revenue trajectory, we have greenfield expansions underway in below ground retail fueling, cryogenic components, flow meters in the US and single-use biopharma components in Asia, along with capacity investments in radio frequency equipment for space, printer and ink production and specialty cases in CO2 systems and large heat exchanges. Many of these projects will be online by the end of the first quarter of 2027.

On the productivity side, we are optimizing our vehicle services footprint, extracting synergies from our polymer processing acquisition and have now completed the footprint consolidation in food retail. These actions generate substantial carryover restructuring benefits which we will quantify when we provide full year guidance in January.

On the right side of the slide are the bolt-on acquisitions we announced in the quarter. Cloeren, which we closed in August, adds extrusion dies and feedblocks to our mag polymer processing platform, along with more than 300,000 square feet of US manufacturing capacity close to the US petrochemical and space launch infrastructure.

Leistung, which we signed and expect to close in the fourth quarter, gives our Clean Energy segment a low-cost state-of-the-art cryogenics components manufacturing presence in India. Both businesses carry excess capacity that other Dover operating companies will leverage its manufacturing hubs in highly strategic locations.

Moving to slide 10. Our balance sheet remains a competitive advantage and our capital allocation priorities are unchanged. Organic investment generates our highest returns, and we are guiding full year CapEx of $200 million to $220 million, with the capacity and productivity projects I just covered delivering attractive returns into next year. We have committed approximately $80 million to our two announced acquisitions. And our pipeline remains active for bolt-on opportunities in high priority markets. We have also repurchased approximately $400 million of shares year-to-date, including $330 million in the third quarter, with over $3 billion of dry powder at quarter end. We have the ample flexibility to play offensive capital allocation and a near-term bias towards returning capital to shareholders.

Let's finish with slide 11. We are moving our full year guidance towards the upper end of the range. Our focus is on finishing the year strong, and our order book gives us confidence in the forecast with momentum carrying into 2027. Alongside a constructive demand backdrop and a strong order book, we will benefit from carryover restructuring savings contributions from completed acquisitions, a lower share count and a roll-off of transition costs in food retail. We look forward to closing out the year strong and are confident as we enter 2027 from a position of strength.

Over to you, Jack.

Leslie, we can go right to the Q&A.

(Operator Instructions) Steve Tusa, Wells Fargo.

Just on the backlog, I think it's like a little bit above $3 billion now, I kind of like go back, do the math. And I think you said 50% of that is like shippable for next year. Is there anything in kind of the non-backlog business that you look out to next year that you would be like worried about being unsustainable or dropping off at all?

I'd characterize it this way. I guess, where we have been capacity constrained is what's driving the backlog into 2027. So the duration of the demand is a good indicator because customers are basically getting in line to reserve that capacity.

It is not overly influenced from some of our more traditional long-cycle businesses. Maag's pretty much as a bottom, same with Belvac. So it's not -- those numbers aren't influenced by those 2 businesses. So that's actually upside the backlog build as we go into 2027. And then our traditional short-cycle businesses, we don't have a lot of visibility going into next year, and we'll just book and ship as we normally do between now and the end of the year.

Right. And is there any reason for the growth to like slow materially in 4Q? I know you kind of like guided that number. The midpoint is a bit of a slowing. Like anything stand out? I mean the orders have been pretty good, book-to-bill above 1 seasonally.

Yes, not really, other than the fact that Q4 is not always in our control, right? We've got the orders, we can make the orders, then it becomes a question at the end of the year whether those orders get called off by our customers or does everybody play a kind of managing the working capital gain at the end of the year. So we're always a little bit cautious because December could go almost either way in any given year. But there's nothing based on the trajectory that we see that's any slowing. It's pure calendarization.

Okay. One more. Just on the buyback you've done, $300 million or something like that. Are you done with that? Or is there still some of that -- you have a ton of cash, ton of capacity is -- can you queue through some of that?

Yes. I think in corporate speak, what we said is that our bias was still on capital return. So take that for what it is.

Great. I don't understand all corporate speak, but that's pretty clear. So I appreciate that.

Nigel Coe, Wolfe Research.

Maybe, Rich, could you just kind of give us a little kind of sense on the dual cost you called out, I think, $40 million of investment and deal cost that's now behind us. Maybe give us a sense on how you see CST margins in the fourth quarter, but more importantly, going into 2027. And you've said 20% margin target in the past for that segment. Are we on track for that in 2028?

Yes. Just for clarity's sake, it's the year-to-date headwind costs of the plant closure and the redundant labor that we've had to run as a result of that. And that's year-to-date, okay? So that number will actually probably go up between now and the end of the year because as line rates come up, we'll absorb that extra labor and then we'll begin to flip it over into productivity. So that's the $40 million.

Yes. I mean, I think that we're well on track of meeting the targets that we put on that sector because of two things. Number one, that the carryover of not having those costs of consolidation between the two years is an add back. The volume across the segment goes up, and so the incremental margin of the fixed cost goes up along with it. So I think that's why I said that we can expect a material change in 2027 in the margin of that particular segment.

But no numbers?

Come on, Nigel. We're going to give you guidance when we get to the end of the year, but it's material.

Okay. You've said 20% of the past. I'm just trying to get a sense on that. But maybe -- can we just talk about the PPS orders -- sorry, not PPS, CST orders? Been strong for a long time now, no sign of slowdown. I'm just wondering maybe if you can just like try and give us another sort of second level detail on SWEP versus CO2 versus core refrigeration.

And I do want to get a sense on one number, Rich, 3% growth in data center this year is impressive. But I would think it'd be even more impressive just given the growth in the market. And I'm wondering if there's any capacity constraints within SWEP that maybe gets released in 2027?

Well, yes. I mean I think that if you go on the slide of our capital investments and if you go back and read the transcript of what I said, yes, we've been capacity constrained all year. It doesn't seem to be preventing the actual build-outs, but everybody is trying to get in front of securing the supply. So there's a lot of signaling effect in there.

But we are basically ramping to double capacity into the main product line that's been growing. This is SWEP now, that's been sent into data centers. That will change over time because there'll be a shift between the central cooling system demand, which we see it now, into more CDU mix into the future, and we're taking that into consideration. In terms of the backlog, I don't want to say 50-50, but it's dominated by CO2 systems demand and SWEP.

Mike Halloran, Baird.

So back to the backlog question on some level, what's the normal conversion ratio at this point? You have your backlog shippable next year. What does that normally look like? And maybe any thoughts on the lead times you're seeing in the industry and if those are starting to extend?

It is higher than average that we would see at this time. I said if we go back and read the transcripts, we would expect in a kind of, let's call it, a normal year, for book-to-bill to come down in Q3 just because of the order of magnitude of shipments. But because of the secular growth nature of some of these businesses that we're in, that customers in certain segments are securing supply, so trying to secure capacity, and so that they're ordering well in advance of what we would normally expect. And that's why we gave you the backlog figures, and that's why we tried to monetize how much of that is 2027 because that, in general terms, would not look like that except for the pace of the growth rate in some of those segments.

That makes sense. And on the buyback side, M&A side, obviously, it certainly makes sense that you're pushing more on the capital return time short term. But maybe what's just happening on the M&A side of things? Are you getting priced out of deals at this point? Has the activity slowed? Maybe just some thoughts there.

Yes. I mean, the activity naturally slows in Q4. Very little comes to the market at the end of the year. So whatever has come to market is -- has come to market not to get into certain deals. Look, we've got return criteria that we stick to. So there are some things that we didn't get that we would have liked to get, but the purchase price that those assets sold forward above that criteria at the end of the day.

We'll see in 2027, but we've got a ton on our plate of organic investment, which is probably going to drive as much revenue growth as kind of bolt-on acquisitions would do. So we retain a posture of optionality, meaning that we'll participate in M&A. We've got some interesting stuff in the pipeline. But with all the cash that we're producing that we carried into this year and all the cash that we're going to produce this year, that clearly -- that our stance is now on capital return.

Joe O'Dea, Vertical Research.

Could you talk a little bit about pricing and what might be in the pipeline just with respect to the inflationary backdrop? It looked like the price this quarter was pretty similar to the second quarter, maybe a little bit tougher comp. But are you out there in the market and you need to do anything more on the pricing side -- to carryover into next year?

Yes, it depends, Joe. I mean we are actually have moved up pricing decisions this year and have been introducing pricing, which in a kind of a stable year of a low inflation environment, we'd kind of wait till the beginning of the year. We've actually accelerated that in certain instances depending on exposure to a variety of different things, whether it's commodity group metals or other things. So I think we're on the front foot of getting ahead of what anybody's view about price cost is going into '27. I think we're actually probably a full quarter in front of getting in front of that.

And then just another one on the food retail and the production ramp costs. As you think about full year being somewhere above 40, how much of that we can think about as being nonrepeat? Is there a carryover associated with it? Or do you think that those are all kind of contained costs that you'll be able to leverage...

It will -- so the speed is coming down as the volumes go up, right, you get the fixed cost absorption benefit. The balance of it is productivity. So it's just winding out kind of extra labor costs as you stabilize the line rates. So we would expect that to progressively get better over the balance of the year and then probably finish up by the end of Q1. But I don't expect the 40 or whatever it ends up being at the end of this year flows through in total going into next year unless volume drops. And based on our backlog right now, we've seen no indication of volume dropping in 2027.

Scott Davis, Melius Research.

What -- Rich, what happens in retail fueling when prices -- when fuel prices are up this much? Does that create a little bit more cash flow for these guys to invest in their businesses? Seems like that -- it's been a while since we've had a big jump like this. But what does $6 diesel and $4 dollar gas do for these folks?

Yes. Not to talk about our customers' profitability, which -- many of which are publicly traded. At the end of the day, earnings spread on fueling products have been up substantially over the past 18 to 24 months, and I don't expect that to narrow. The better news -- so that's great. We like healthy customers that are making a lot of money, number one.

And number two, the good part of what we've seen about the CapEx is there is supply constraints in that particular market, and that is just lengthening the duration of what we believe the demand cycle is. So we knew we were coming into a CapEx cycle for a variety of different reasons. We now believe that, that is going to extend. I think we called it out 1.5 years ago, it was a three year cycle. It's probably going to -- we could probably argue it's going to be at least four.

And is that an area where you're able to get price because of that supply chain dislocation?

It's -- in terms of the amount of market participants, it is a market that we like.

Andy Kaplowitz, Citigroup.

Rich, so DII margin, I think, was the best margin that segment is recorded. I know you mentioned mix productivity effects, but I think you've been working on structural cost actions in that segment. So when you think about DII's margins even more sustainable, closer to Q3 rates, or maybe was that more of a one-time bump?

Look, I look at year-to-date at the end of the day because it's our most global business, there's a lot running through that, that some of our other businesses don't have to deal with specialty FX and then mix because of the disproportionate difference in margin between the consumables and the equipment. So it will move around for that.

Having said that, if you go back and take a look over a three to five year period, we've steadily marched up the margin in that business through a variety of different measures. We're making some pretty significant investments. We built a brand-new plant in Poland this past year, and we're going to finish up on basically rebuilding our ink production in 2027, so we expect some productivity to come out of that.

So yes, I mean, I wouldn't get all excited about the quarters -- this quarter's margin. But if you look at it on a year-to-date basis, that's entirely sustainable.

That's great. And maybe a similar question on Clean Energy & Fueling. If I look at Q3 year-over-year margin, it's a little bit more difficult than the first half. I know you talked about cryo space production ramp impacting margin. But maybe update us some of the platform you created in that business, that journey, I think you talked about the 25% margin. Where is that?

Look, we're tracking there, but we've been -- the opportunities that we found on the cryo side over the past 18 months, which is driving the top line, is requiring a lot of investment on our part. So that has got a little bit of a dilutive effect, but we'll take that trade-off any day, right? Because it's driving the top line and they are -- these are businesses with secular growth that once we go through the build phase, we can expect what we saw in SWEP over the last couple of years where we had margins that were down because investment was running forward than the revenue.

Now we've got the revenue in SWEP and so the incremental margin is robust. We'd expect that same kind of trajectory. And that's the reason that we put that slide in about all the organic investments that we're making is, it's not only to kind of explain what we think about the durability of the revenue increase, but it's to give you a signal of we're going to invest here, there's some cost of making those investments. But we believe, over time, the return on invested capital there will be excellent.

Brett Linzey, Mizuho. -- We will move to our next question. Our next question comes from Amit Mehrotra with UBS.

Just maybe one quick one. SWEP lead times. Last time I checked in, they were like 25 weeks. Is that still the case? And I think that's where most of your copper exposure is, obviously, copper has come off a little bit, but sort of hit all-time highs in September. I think you have material pass-through on that.

So no issue on price cost. Maybe you can enlighten me on that. But maybe there's a margin issue as copper rises in that business? Maybe you can talk about those two things?

Yes. Let's deal with copper first. I think that it is -- and we do have copper exposure there, but it's built into the pricing mechanism with our supplier contracts in SWEP. I don't know what lead times are off the top of my head. I mean, we're bringing on additional capacity sequentially through the year, but with a pretty big jump this quarter going into Q1, then it becomes a big debate of well, but the lead times keep going out because the orders keep coming in, in advance of that capacity build. Does that wind down in '27? Hard to say. Right now, we don't see it, but we are bringing on more capacity because the fact that we believe in the durability of the demand.

But it's not measured in years, it's measured in quarters, right?

Yes, yes. No, no, we're not -- it's not in years.

So I guess just my follow-up question, my clarifying question then. If I think about quarterly order in dollar terms over the last three quarters. So this year, sort of averaged $2.3 billion to $2.4 billion depending on the quarter. That's about 9%, 10% higher than the average quarterly revenue of this year. I'm sure you're going to tell me to curb my enthusiasm, but is that the wrong way to think about maybe the organic growth opportunity next year?

Let me answer it this way. We've given your book-to-bill. Against my own advice, we gave you the number of the backlog increase to get into the high-level math when you don't know what the duration is of the timing of those orders is a fool's game. I'm sure Jack can give you all kinds of clarifying questions, but I can't go there right now.

I guess that was my question about lead times, right?

Yes, yes. Look, I mean we're not losing share because of lead times, right? Because generally speaking, we're in very concentrated markets from a supply base. So those who bring on the capacity proactively tend to win, and that's why we've been investing in advance of some of this demand to the detriment of margins, by the way. But it's -- but they end up being good investments once they roll over and absorb the fixed cost. So we can see that in SWEP, right now.

Andrew Obin, Bank of America.

This is David Ridley-Lane on for Andrew. Clean Energy & Fueling, there's a comment that you're planning a greenfield expansion and below-ground retail fueling. I know that there is a regulatory or replacement cycle there for underground tanks, but adding capacity expansion suggests that you think this is kind of a multiyear durable cycle. Is that the right interpretation?

Yes. I think I answered it a minute ago to Scott. The -- there is capacity constraints and underground equipment to become into compliance on tanks. And that -- and because there's capacity -- by the way, we don't supply. But what that is doing is lengthening the duration of the demand because you can't get the tanks to do the work, right? What we're expanding in is all of the products that are around that where we see robust demand and our margins are quite good. So that's the way I would answer it.

And just a quick follow-up. Have you been hearing any impact from higher interest rates from any of your more capital planning type businesses? Is that something that's pulled up to your level?

None.

That's very clear.

Joe Ritchie, Goldman Sachs.

So Rich, look, the slide 9 is great, right, gives you a lot of detail on your capacity expansions, organic investments, et cetera. I guess the question I have is as you -- as we're getting closer and closer to 2027, like how much does this set you up for growth beyond '27 based on what you know today? Or do you think there's going to possibly be additional capacity expansion beyond what you've already announced?

Well, I hope we have additional capacity expansion, but the capacities that we are laying in are for multiyear, especially the greenfields, right? I mean we're building -- greenfield is like building a new site, and we would never capacitize a new site for the next 12 months unless -- because you never get the return on capital there. So they're all -- have been sized on the initial investment for a multiyear duration. So in a way, if we have the same slide again next year and there are additional capacity on top of it, it's a great sign because it's just more demand than we've sized the initial investment. So right now, these investments we believe that we can capture our share of the market of the growth rates that I think that we showed you on slide 5.

Got it. Okay. That's super helpful. And then going back to the question earlier about the $40 million and the $40 million potentially going higher as the year progresses. I guess, quick math, right, taking a look at your revenue year-to-date in CST, it's like -- that equates like roughly 300 basis points, if I'm doing the math right. So I guess the question I have is you get into 2027, like when would you expect to see a turn in CST margins and starting to -- obviously, you've been taking on these extra costs throughout the year and will continue. But I'm just curious when you would expect to be a turn based on what you know today?

I think that we will beat our comp in Q1.

Andrew Buscaglia, BNP Paribas.

If you could -- just kind of tying this all together, I get -- sort of get the sense -- your outlook for '27 or your confidence in '27 has improved in the last few months. I mean, just based on some of these higher-growth markets and like the visibility you have. Am I right in that, that's the core reason you're kind of sounding better on '27 or sounding positive on '27 or -- or slide 6 sort of suggests like your underlying just kind of core markets are seeing some improvements cyclically. So I guess where is more of the confidence coming from? Is that high-growth stuff or like that core business?

Yes. Well, I mean, the slides are put in there for a reason, and it's the trajectory growth rates on where we've been investing, have -- I mean, we're looking at, I don't know, what did we say, 500 basis points of improvement over the past 24 or not even 24 months, 20 months. So that we're good there. And we have a data point in terms of orders and backlog earlier this year than we would have in a normal year.

So growth -- where we've chosen to participate, those markets are performing well. And the customers that we have across the broader portfolio are beginning to order into 2027 for a variety of reasons that we usually are kind of cautious until we get into giving full year guidance because usually, we don't have that kind of visibility.

Yes. That's the sense I get. Okay. And then just on the heat exchanger side, you talked about -- you sort of said you hope you have more capacity investments because I mean things are probably going well. What are capacity requirements like heat exchangers, in your opinion? And then just given the really strong growth we're seeing in that data center cooling side, what's the competitive dynamics there? That's always been sort of a risk that you're not alone in identifying this growth in -- yes, if you could kind of comment on that too, please?

Yes. Everybody wants to be in data centers. I see the M&A presentations all the time. Look, this is -- that's a highly automated process. You need to make capacity decisions 18 months in advance before them coming online. So this is not kind of hire a bunch of people and get bigger throughput. It's actually very little people in the process. And so it's a very highly engineered -- probably one of the most highly engineered products that we have in the entire portfolio.

It's a very concentrated market, but those competitors that we have, if you went and looked, are also announcing capacity expansion. So I don't -- I think that we've done a very good job of proactively investing in capacity in advance of the market to the detriment of margins in the past. So we'll get our fair share here.

But I can't disagree with you. I mean everybody wants to be in data center. So you've got to be -- we're going to find out altogether about the duration of the demand. Right now, I don't think we're getting over our skis just because our backlog says what it is, and we believe there is going to be a conversion into more CDU mix than we see now. But I think that we're positioned competitively and from a capacity point of view, appropriately.

Brandon Knutson, Morgan Stanley.

Just a quick follow-up on CST mark. So you said it's going to be stronger (technical difficulty) -- growth from -- flat. A lot of that --

Brandon, we're having a hard time hearing you. Are you far away from the microphone?

Hello?

Hey, can you hear us, Brandon?

Yes. Can you hear me?

Yes, we can hear you now. Go ahead.

CST, you saw strong growth accelerate the margins -- ?

Brandon, you're cutting out. You know what, give Jack a call, he'll get to you. But -- you're cutting in and out.

Okay. I think we can wrap up the call, Leslie.

That concludes our question-and-answer period and Dover's third-quarter 2026 earnings conference call. You may now disconnect your line at this time, and have a wonderful day.