Dover (NYSE:DOV) Misses Q3 Sales Targets

Manufacturing company Dover (NYSE:DOV) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 1.3% year on year to $1.98 billion. Its non-GAAP profit of $2.27 per share was 4.3% above analysts’ consensus estimates.

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Dover's President and Chief Executive Officer, Richard J. Tobin, said, "Dover's third quarter results were in line with our expectations, driven by excellent production performance and positive margin mix from our growth platforms in clean energy, biopharma components, thermal connectors, and CO2 refrigeration systems. Top line performance was broad-based across the majority of the portfolio, more than offsetting near-term headwinds in polymer processing, beverage can-making, and heat exchangers for European heat pumps. Consolidated bookings continued their positive trajectory, with robust order rates in our secular-growth-exposed markets.

Company Overview

A company who manufactured critical equipment for the United States military during World War II, Dover (NYSE:DOV) manufactures engineered components and specialized equipment for numerous industries.

General Industrial Machinery

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Dover grew its sales at a weak 1.5% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Dover’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.9% annually.

This quarter, Dover grew its revenue by 1.3% year on year, and its $1.98 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months, an acceleration versus the last two years. Although this projection illustrates the market thinks its newer products and services will fuel better performance, it is still below average for the sector.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.

Dover has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.6%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Dover’s annual operating margin rose by 1.8 percentage points over the last five years, showing its efficiency has improved.

This quarter, Dover generated an operating profit margin of 16.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Dover’s EPS grew at an unimpressive 7.3% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.5% annualized revenue growth and tells us the company became more profitable as it expanded.

We can take a deeper look into Dover’s earnings to better understand the drivers of its performance. As we mentioned earlier, Dover’s operating margin was flat this quarter but expanded by 1.8 percentage points over the last five years. On top of that, its share count shrank by 6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Dover, its two-year annual EPS growth of 1.2% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Dover reported EPS at $2.27, up from $2.14 in the same quarter last year. This print beat analysts’ estimates by 4.3%. Over the next 12 months, Wall Street expects Dover’s full-year EPS of $8.27 to grow by 10.2%.

Key Takeaways from Dover’s Q3 Results

It was good to see Dover beat analysts’ EPS expectations this quarter. On the other hand, its EBITDA missed and its revenue fell short of Wall Street’s estimates. The company also lowered full year EPS guidance. Overall, this quarter could have been better. The stock traded down 2.7% to $186.50 immediately following the results.

Dover may have had a tough quarter, but does that actually create an opportunity to invest right now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.