netrashetty
Netra Shetty
Dover Corporation (NYSE: DOV) is a Fortune 500 and S&P 500 manufacturer of specialized industrial products and equipment within six segments. Dover Corporation is based in Downers Grove, Illinois, a western suburb of Chicago. The company relocated its headquarters from New York in mid-2010.
Dover Corporation (NYSE: DOV) is best described as diverse. An industrial conglomerate that allows its four segments and thirty-two subsidiaries significant autonomy, Dover produces a variety of products, just a few of which are four-wheel-drive and all-wheel-drive power train systems, walk-in coolers, drill bit inserts for oil and gas exploration, and hearing aid components.[1] Dover's largest segment is Engineered Systems, which includes a wide range of products, from heating, cooling, and ventilation systems to product identification mechanisms used in markets where labeling is required (food, drugs, etc.).[2]
Dover operates primarily in the United States and has international subsidiaries primarily located in Western Europe, and it is becoming increasingly present in emerging markets.[3] Approximately 43.6% of Dover's revenue comes from abroad.[4] Dover's diversification across both industries and geographic borders makes it resilient and less affected by industry-specific issues. For example, despite the fact that Dover produces parts for American oil rigs, Dover's stock was not as adversely affected by the BP oil spill as were other oil-related companies'.[5]
The demand for many of Dover's products is sensitive to the state of the economy. As such, in 2009, Dover's revenue decreased 23.7% due to the decreased demand brought on by global economic slowdown;[6] however, as the economy improved in the first quarter of 2010, the firm's revenue and earnings improved by 14.8% from the same quarter in 2009.[7] Despite decreases in revenues and earnings in 2009, Dover still increased its dividend payments.[8] Dover prides itself on 55 years of steady dividends increases.[9]
Contents
1 Business Overview
1.1 Business Segmentation
1.2 Business and Financial Metrics
2 Trends and Forces
2.1 North American Oil Drilling Tied to Fluid Management Revenues
2.2 Dover Materials Handling Products Driven by Economic Growth
2.3 International Expansion Provides Growth Potential and Risk Factors
3 Competition
4 References
Business Overview
Dover Corporation is involved in a number of industries ranging from construction to consumer electronics. Dover consists of four major segments with seven major product types. Each of these segments is allowed significant autonomy over its products and markets while being afforded the leverage of Dover's substantial resources for production.[10]
Dover's receives the largest fraction of its revenue (18.3%) from engineered products (a subsection of its Engineered Systems segment),[11] which include refrigeration, heating, and ventilation systems as well mechanical packaging systems.[2] The next largest revenue source is Dover's electronic technologies products,[11] which range from consumer electronics to micro acoustic components. In response to poor economic climates in 2009, Dover downsized, shifting away from lower margin operations by discontinuing seven operations and selling ten business while only acquiring six add-on businesses.[12]
Business Segmentation
Dover segments its business into the four following sections:
Percentage Revenue by Business Segment[13]
Industrial Products (28% of revenue)—includes materials handling equipment, such as construction equipment, as well as mobile equipment such as power train systems, truck bodies, internal engine components, and aerospace components.[14] Industrial Products' revenue and earnings decreased 34% between 2008 and 2009 due to general economic slowdown; however, revenue improved in the fourth quarter of 2009.[11]
Revenue, in thousands 2009 2008
Material Handling ($) 660,353 1,136,869
Mobile Equipment ($) 962,177 1,323,422
Engineered Systems (32% of revenue)—includes engineered products such as refrigerators, air and ventilation systems, and packaging machines, as well as product identification products such as marking and coding systems (i.e. bar codes, dates, and serial numbers).[14] Engineered Systems revenue decreased by 7% between 2008 and 2009 due to unfavorable market conditions and exchange rates.[11]
Revenue, in thousands 2009 2008
Enginered Products ($) 1,059,660 1,085,881
Product Identification ($) 802,276 924,469
Fluid Management (22% of revenue)—includes energy production and distribution products such as gas well production control devices as well as fluid solution products such as suction system equipment, pumps, and chemical proportioning and dispensing systems.[14] Fluid Management revenue decreased by 26% between 2008 and 2009, a loss largely due to a decrease in energy demands and offset by an increase in active North American drilling rigs.[11]
Revenue, in thousands 2009 2008
Energy ($) 624,221 935,414
Fluid Solutions ($) 646,849 778,812
Electronic Technologies (18% of revenue)—includes parts for consumer electronics, electromagnetic products, and assembly and testing equipment.[14] Electronic Technologies revenues decreased 26% between 2008 and 2009 primarily due to weak demand.
Revenue by Region, in thousands 2009
United States 3,257,152
Europe 1,078,308
Other Americas 463,176
Total Asia 791,292
Other 185,761
Total 5,775,689
Business and Financial Metrics
For the first quarter of 2010, Dover has reported a near doubling of net earnings ($121.5 million from $61.1 million) and a 14.8% increase in net revenues (to $1.6 billion) when compared to the same quarter in 2009.[15] Of the 14.8% increase in revenue, Dover's first 2010 quarterly report attributes 7.0% to organic growth, 5.1% to acquisitions made in 2009, and 2.7% to favorable foreign exchange rates.[7] Dover's growth in 2010 is largely attributable to increased demand as a result of improvements to economic conditions.[7] The opposite effect can be seen in the $1.8 billion dollar loss in revenue reported between 2008 and 2009. This substantial loss of revenue can be largely attributed to changes in the global economic climate between the two years.[6]
Annual Financial Data, in thousands[6] 2009 2008 2007
Revenue $5,775,689 $7,568,888 $7,317,270
Gross Profit $2,099,154 $2,730,007 $2,619,502
Operating Earnings $588,043 $1,029,330 $1,005,497
Net Earnings $356,438 $590,831 $661,080
It is noteworthy that Dover prides itself on providing its investors with consistent dividends, and as of 2010, Dover has provided its shareholders with 55 years of consecutive annual dividend increases.[9]
Trends and Forces
North American Oil Drilling Tied to Fluid Management Revenues
Dover's Fluid Management segment has 82% of its properties located in North America. [16] Changes in demand for Dover's products associated with changes in North American oil drilling stand to affect Dover's revenues.
North American oil drilling has been fluctuating significantly over the last few years. For example, the average number of active U.S. oil rigs during the summer of 2009 was less than half of the same average in 2010.[17] Dover argues that the decrease in rig count, a result of lowered energy prices and demand, was a key factor in the 26% loss in Fluid Management revenue between 2008 and 2009.[18] However, the rig count has been increasing consistently through the latter half of 2009 and into 2010.[17] Dover notes that this increase helped offset its revenue losses in 2009. [19] Growth potential for North American drilling can be seen offshore and in wildlife reserves.
However, reactions to the BP (BP) oil spill might lead to greater regulations and fewer oil rigs in the United States. A number of oil-related companies have seen their stocks slide since the BP spill,[5] indicating that the market sees the incident as possibly having a negative affect on oil-related companies. Initially, the Department of the Interior placed a six-month moratorium on all deep-water drilling, but it was lifted by a New Orleans district judge in New Orleans who deemed the moratorium to be too punitive and too broad.[20] As of July 8, 2010, the Fifth Circuit Court of Appeals is hearing continued arguments to reinstate the ban from the Obama administration.[21] Additionally, some legislators would like use prior acts as a means to block offenders, such as BP, from leasing more offshore land.[22] Even if BP and others are not prevented from continuing drilling, expansion in North American drilling is likely to be slowed. For example, in response to the BP oil spill, California Governor Arnold Schwarzenegger withdrew his support for oil exploration off of the California coast.[23]
Dover Materials Handling Products Driven by Economic Growth
Dover's materials handling products, which are produced by its Industrial Products segment, are used in construction, an industry that does substantially better in expanding economies.[24] Thus, the demand for said products is sensitive to the growth of the economy. In 2009, Dover's materials handling revenue fell by 42%, largely due to decreased demand from global economic slowdown.[6] The value of construction started in 2009 was approximately 25% lower than in 2008.[25] However, McGraw-Hill forecasts improvements in 2010, especially in public works,[26] and the Construction Industry Confidence Index has increased to 41/100, up 7 points (20.5%) in the second quarter of 2010.[27] The increased confidence is the result of both general improvement in economic condition as well as the stimulus package, which allotted roughly $131 billion to construction-related spending, much of which is still being spent.[28] If the construction industry does improve as predicted, so should Dover's revenue from materials handling products.
Similar sensitivities to economic condition exist in Dover's Fluid Management and Electronic Technologies segments, and, to a lesser degree, Dover's Engineered Systems segment. Dover's 2009 10-k argues that the 26%, 26%, and 7% losses in revenue for the three segments, respectively, were largely due to weakened demand from a poor economy.[11] As such, Dover's first 2010 quarterly report attributes a large part of its 15%, 36%, 20% increases in revenue (Fluid Management, Electronic Technologies, and Engineered Systems, respectively) from the same quarter in 2009 to increases in demand from a recovering economy.[7]
International Expansion Provides Growth Potential and Risk Factors
Dover has been expanding internationally, especially into Asia, Eastern Europe, Mexico, and Brazil. For example, the share of Dover's revenue that comes from Asia has increased from 12.8% to 13.7% between 2008 and 2009,[29] and on September 22, 2009, Dover opened a regional headquarters in Shanghai to help increase presence in Asian markets.[30] Dover's international expansion, especially into emerging markets, lets Dover provide products to untapped markets, and it affords Dover the opportunity to move production outside of the United States. Expansion, however, is not without risk. It exposes Dover to potential economic and political instabilities abroad, and it demands that Dover accept the potentially unfavorable affects of foreign exchange (1.7% loss of revenue in 2009).[6] Of course, foreign exchange can also positively affect Dover. On June 21, 2010, when China announced a favorable improvement in the renminbi, Dover saw a 1.5% improvement in the value of their stock, despite an unfavorable day for the Dow and S&P 500.[31] Additionally, Dover attributes 2.7 out of 14.8% of its increases in revenue in the first quarter of 2010 to favorable foreign exchange.[7]
Competition
Because Dover's products are so diverse, its competitors only compete with a fraction of Dover's products. However, the following are a few firms that compete with Dover on some level:
Weatherford International (WFT), an oilfield services company that operates both in the US and abroad, competes with Dover's Fluid Management because they both produce parts and products used in oil rigs. Weatherfield International, however, receives a greater percentage of it's revenue abroad than does Dover.[32]
Cooper Industries (CBE) is an industrial conglomerate with an emphasis on electrical products[33] that competes with Dover's Electronic technologies segment.
Ingersoll-Rand Company (IR) produces air and temperature control systems, refrigerators, and fluid-handling equipment, which compete with Dover's Engineered Systems' and, to a lesser degree, Fluid Management's products.[34]
Comparison of Competition[35] Dover Cooper Industries Ingersoll-Rand Weatherford International
Market Capitalization 8.11 B 7.58 B 10.91 B 10.56 B
Net Income 356.43 M 439.10 M -2.56 B 253.76 M
Revenue 5.77 B 5.06 B 13.22 B 8.82 B
Dover Corporation (NYSE: DOV) is best described as diverse. An industrial conglomerate that allows its four segments and thirty-two subsidiaries significant autonomy, Dover produces a variety of products, just a few of which are four-wheel-drive and all-wheel-drive power train systems, walk-in coolers, drill bit inserts for oil and gas exploration, and hearing aid components.[1] Dover's largest segment is Engineered Systems, which includes a wide range of products, from heating, cooling, and ventilation systems to product identification mechanisms used in markets where labeling is required (food, drugs, etc.).[2]
Dover operates primarily in the United States and has international subsidiaries primarily located in Western Europe, and it is becoming increasingly present in emerging markets.[3] Approximately 43.6% of Dover's revenue comes from abroad.[4] Dover's diversification across both industries and geographic borders makes it resilient and less affected by industry-specific issues. For example, despite the fact that Dover produces parts for American oil rigs, Dover's stock was not as adversely affected by the BP oil spill as were other oil-related companies'.[5]
The demand for many of Dover's products is sensitive to the state of the economy. As such, in 2009, Dover's revenue decreased 23.7% due to the decreased demand brought on by global economic slowdown;[6] however, as the economy improved in the first quarter of 2010, the firm's revenue and earnings improved by 14.8% from the same quarter in 2009.[7] Despite decreases in revenues and earnings in 2009, Dover still increased its dividend payments.[8] Dover prides itself on 55 years of steady dividends increases.[9]
Contents
1 Business Overview
1.1 Business Segmentation
1.2 Business and Financial Metrics
2 Trends and Forces
2.1 North American Oil Drilling Tied to Fluid Management Revenues
2.2 Dover Materials Handling Products Driven by Economic Growth
2.3 International Expansion Provides Growth Potential and Risk Factors
3 Competition
4 References
Business Overview
Dover Corporation is involved in a number of industries ranging from construction to consumer electronics. Dover consists of four major segments with seven major product types. Each of these segments is allowed significant autonomy over its products and markets while being afforded the leverage of Dover's substantial resources for production.[10]
Dover's receives the largest fraction of its revenue (18.3%) from engineered products (a subsection of its Engineered Systems segment),[11] which include refrigeration, heating, and ventilation systems as well mechanical packaging systems.[2] The next largest revenue source is Dover's electronic technologies products,[11] which range from consumer electronics to micro acoustic components. In response to poor economic climates in 2009, Dover downsized, shifting away from lower margin operations by discontinuing seven operations and selling ten business while only acquiring six add-on businesses.[12]
Business Segmentation
Dover segments its business into the four following sections:
Percentage Revenue by Business Segment[13]
Industrial Products (28% of revenue)—includes materials handling equipment, such as construction equipment, as well as mobile equipment such as power train systems, truck bodies, internal engine components, and aerospace components.[14] Industrial Products' revenue and earnings decreased 34% between 2008 and 2009 due to general economic slowdown; however, revenue improved in the fourth quarter of 2009.[11]
Revenue, in thousands 2009 2008
Material Handling ($) 660,353 1,136,869
Mobile Equipment ($) 962,177 1,323,422
Engineered Systems (32% of revenue)—includes engineered products such as refrigerators, air and ventilation systems, and packaging machines, as well as product identification products such as marking and coding systems (i.e. bar codes, dates, and serial numbers).[14] Engineered Systems revenue decreased by 7% between 2008 and 2009 due to unfavorable market conditions and exchange rates.[11]
Revenue, in thousands 2009 2008
Enginered Products ($) 1,059,660 1,085,881
Product Identification ($) 802,276 924,469
Fluid Management (22% of revenue)—includes energy production and distribution products such as gas well production control devices as well as fluid solution products such as suction system equipment, pumps, and chemical proportioning and dispensing systems.[14] Fluid Management revenue decreased by 26% between 2008 and 2009, a loss largely due to a decrease in energy demands and offset by an increase in active North American drilling rigs.[11]
Revenue, in thousands 2009 2008
Energy ($) 624,221 935,414
Fluid Solutions ($) 646,849 778,812
Electronic Technologies (18% of revenue)—includes parts for consumer electronics, electromagnetic products, and assembly and testing equipment.[14] Electronic Technologies revenues decreased 26% between 2008 and 2009 primarily due to weak demand.
Revenue by Region, in thousands 2009
United States 3,257,152
Europe 1,078,308
Other Americas 463,176
Total Asia 791,292
Other 185,761
Total 5,775,689
Business and Financial Metrics
For the first quarter of 2010, Dover has reported a near doubling of net earnings ($121.5 million from $61.1 million) and a 14.8% increase in net revenues (to $1.6 billion) when compared to the same quarter in 2009.[15] Of the 14.8% increase in revenue, Dover's first 2010 quarterly report attributes 7.0% to organic growth, 5.1% to acquisitions made in 2009, and 2.7% to favorable foreign exchange rates.[7] Dover's growth in 2010 is largely attributable to increased demand as a result of improvements to economic conditions.[7] The opposite effect can be seen in the $1.8 billion dollar loss in revenue reported between 2008 and 2009. This substantial loss of revenue can be largely attributed to changes in the global economic climate between the two years.[6]
Annual Financial Data, in thousands[6] 2009 2008 2007
Revenue $5,775,689 $7,568,888 $7,317,270
Gross Profit $2,099,154 $2,730,007 $2,619,502
Operating Earnings $588,043 $1,029,330 $1,005,497
Net Earnings $356,438 $590,831 $661,080
It is noteworthy that Dover prides itself on providing its investors with consistent dividends, and as of 2010, Dover has provided its shareholders with 55 years of consecutive annual dividend increases.[9]
Trends and Forces
North American Oil Drilling Tied to Fluid Management Revenues
Dover's Fluid Management segment has 82% of its properties located in North America. [16] Changes in demand for Dover's products associated with changes in North American oil drilling stand to affect Dover's revenues.
North American oil drilling has been fluctuating significantly over the last few years. For example, the average number of active U.S. oil rigs during the summer of 2009 was less than half of the same average in 2010.[17] Dover argues that the decrease in rig count, a result of lowered energy prices and demand, was a key factor in the 26% loss in Fluid Management revenue between 2008 and 2009.[18] However, the rig count has been increasing consistently through the latter half of 2009 and into 2010.[17] Dover notes that this increase helped offset its revenue losses in 2009. [19] Growth potential for North American drilling can be seen offshore and in wildlife reserves.
However, reactions to the BP (BP) oil spill might lead to greater regulations and fewer oil rigs in the United States. A number of oil-related companies have seen their stocks slide since the BP spill,[5] indicating that the market sees the incident as possibly having a negative affect on oil-related companies. Initially, the Department of the Interior placed a six-month moratorium on all deep-water drilling, but it was lifted by a New Orleans district judge in New Orleans who deemed the moratorium to be too punitive and too broad.[20] As of July 8, 2010, the Fifth Circuit Court of Appeals is hearing continued arguments to reinstate the ban from the Obama administration.[21] Additionally, some legislators would like use prior acts as a means to block offenders, such as BP, from leasing more offshore land.[22] Even if BP and others are not prevented from continuing drilling, expansion in North American drilling is likely to be slowed. For example, in response to the BP oil spill, California Governor Arnold Schwarzenegger withdrew his support for oil exploration off of the California coast.[23]
Dover Materials Handling Products Driven by Economic Growth
Dover's materials handling products, which are produced by its Industrial Products segment, are used in construction, an industry that does substantially better in expanding economies.[24] Thus, the demand for said products is sensitive to the growth of the economy. In 2009, Dover's materials handling revenue fell by 42%, largely due to decreased demand from global economic slowdown.[6] The value of construction started in 2009 was approximately 25% lower than in 2008.[25] However, McGraw-Hill forecasts improvements in 2010, especially in public works,[26] and the Construction Industry Confidence Index has increased to 41/100, up 7 points (20.5%) in the second quarter of 2010.[27] The increased confidence is the result of both general improvement in economic condition as well as the stimulus package, which allotted roughly $131 billion to construction-related spending, much of which is still being spent.[28] If the construction industry does improve as predicted, so should Dover's revenue from materials handling products.
Similar sensitivities to economic condition exist in Dover's Fluid Management and Electronic Technologies segments, and, to a lesser degree, Dover's Engineered Systems segment. Dover's 2009 10-k argues that the 26%, 26%, and 7% losses in revenue for the three segments, respectively, were largely due to weakened demand from a poor economy.[11] As such, Dover's first 2010 quarterly report attributes a large part of its 15%, 36%, 20% increases in revenue (Fluid Management, Electronic Technologies, and Engineered Systems, respectively) from the same quarter in 2009 to increases in demand from a recovering economy.[7]
International Expansion Provides Growth Potential and Risk Factors
Dover has been expanding internationally, especially into Asia, Eastern Europe, Mexico, and Brazil. For example, the share of Dover's revenue that comes from Asia has increased from 12.8% to 13.7% between 2008 and 2009,[29] and on September 22, 2009, Dover opened a regional headquarters in Shanghai to help increase presence in Asian markets.[30] Dover's international expansion, especially into emerging markets, lets Dover provide products to untapped markets, and it affords Dover the opportunity to move production outside of the United States. Expansion, however, is not without risk. It exposes Dover to potential economic and political instabilities abroad, and it demands that Dover accept the potentially unfavorable affects of foreign exchange (1.7% loss of revenue in 2009).[6] Of course, foreign exchange can also positively affect Dover. On June 21, 2010, when China announced a favorable improvement in the renminbi, Dover saw a 1.5% improvement in the value of their stock, despite an unfavorable day for the Dow and S&P 500.[31] Additionally, Dover attributes 2.7 out of 14.8% of its increases in revenue in the first quarter of 2010 to favorable foreign exchange.[7]
Competition
Because Dover's products are so diverse, its competitors only compete with a fraction of Dover's products. However, the following are a few firms that compete with Dover on some level:
Weatherford International (WFT), an oilfield services company that operates both in the US and abroad, competes with Dover's Fluid Management because they both produce parts and products used in oil rigs. Weatherfield International, however, receives a greater percentage of it's revenue abroad than does Dover.[32]
Cooper Industries (CBE) is an industrial conglomerate with an emphasis on electrical products[33] that competes with Dover's Electronic technologies segment.
Ingersoll-Rand Company (IR) produces air and temperature control systems, refrigerators, and fluid-handling equipment, which compete with Dover's Engineered Systems' and, to a lesser degree, Fluid Management's products.[34]
Comparison of Competition[35] Dover Cooper Industries Ingersoll-Rand Weatherford International
Market Capitalization 8.11 B 7.58 B 10.91 B 10.56 B
Net Income 356.43 M 439.10 M -2.56 B 253.76 M
Revenue 5.77 B 5.06 B 13.22 B 8.82 B