Dover Corporation (DOV) Q1 2008 Earnings Report, Transcript and Summary

Good morning, and welcome to the First Quarter 2008 Dover Corporation Earnings Conference Call. With us today are Ron Hoffman, President and Chief Executive officer of Dover Corporation; Rob Kuhbach, Vice President of Finance and Chief Financial Officer of Dover Corporation; and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation. After the speakers' opening remarks, there will be a question-and-answer period. [Operator Instructions]. As a remainder, 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 Ron on Dover's operating and financial performance. We will then open the call up to questions. In the interest of time, we kindly ask that you limit your questions to one with a follow-up. Please note that our current earnings release, investor supplement and associated presentation can be found on our website, www.dovercorporation.com. This call will be available for playback through 5 PM May 7th and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-642-1687. When accessing the playback you'll need to supply the following reservation code, 42024982. 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 analyses of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake no obligations 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 this call over to Ron.

Thanks, Paul. Good morning, everyone. Thank you for joining today's conference call. We are pleased to report that Dover's broad global engagement and improved focus in four operating segments produced very solid first quarter results. Revenue for the quarter increased to $1.86 billion, up 8% over the prior year. Net earnings from continuing operations were up 9% to $146 million, and diluted earnings per share from continuing operations was $0.76, up 16% over the prior year. Operating margins for the quarter were 14.1%, up 60 basis points over the prior year, but down 20 basis points sequentially. Double-digit earnings improvement was posted in the Product Identification, Energy, Fluid Solutions, and Mobile Equipment platforms. Operating leverage for the quarter was a strong 21% over the prior-year period. Bookings, which improved each month during the quarter, were a record $1.96 billion, up 6% over the prior-year, led by gains in Energy, Fluid Solutions, Product Identification and Electronic Technologies. Backlog is $1.51 billion, up 8% over last year and up 9% from year-end. Double-digit backlog growth was posted at Product Identification, Energy, Fluid Solutions and Mobile Equipment. During our last earnings call, we identified several strategic initiatives to enhance our company's long-term success. We continue to see the merits of the simplified and sharper alignment of our four-segment, six-platform organization structure. We stated that this new structure would enhance our ability to capture synergies within our segments and would result in a 4% to 6% improvement in operating earnings over the next two years, and we are pleased to see this process being embedded within the Dover culture. In order to provide the required resources to manage this process, platform presidents have been named at the Material Handling and Fluid Solutions platforms. Within the Energy Products Group, Norris and Alberta Oil Tool, our sucker rod companies, now have a unified management team to identify operating and sales synergies. In Fluid Solutions, we have just announced a Pump Solutions Group and are combining the global Wilden, Blackmer, and the newly acquired Neptune Pump companies under one leadership team. At Product Identification, integration activities are well underway at Markem.Imaje. In the first quarter, they completed the integration of the global sales organization, defined our best class… best-in-class product portfolio, and continue to identify synergy opportunities while beginning to realize some early integration benefits. At Electronic Technologies, we have named an Executive Vice President responsible for Everett Charles, DEK and OK International to identify and implement a game plan for potential synergies. We are pleased with our early progress, and these synergy initiatives equated to roughly $0.01 of EPS improvement in the first quarter. Dover's strong free cash flow is being allocated to fund the previously announced share repurchase program as well as the internal growth initiatives of our operating companies. We spent $150 million buying back shares during the quarter, and our share count was reduced by 3.6 million shares. Since August of 2007, Dover has spent $662 million repurchasing 14.5 million shares, which has reduced our share count by roughly 7%. Dover continues to be highly selective in evaluating potential acquisitions and is focused on synergistic add-ons within its identified platforms and segments. For the year, we have invested close to $100 million on three highly strategic add-on acquisitions. Tulsa Winch in the Material Handling platform broadened its served markets and specialty products by acquiring LANTEC Winch in Canada. US Synthetics in our Energy platform acquired Brady bid [ph], which expands its synthetic diamond technology to the mining industry. And the newly formed Pump Solutions Group within the Fluid Solutions platform acquired Neptune Pump, which adds a metering pump for water treatment applications to its broad array of pumping solutions. These three acquisitions were seller-led and not an auction driven process. These acquisitions will be slightly accretive in the current year. During the first quarter, Dover generated free cash flow of $104 million, 5.6% of revenue, driven by increased earnings and continued improvements in working capital. Free cash flow for the year continues to be forecast at plus 10% of revenue, and we are highly confident that free cash flow will increase in the upcoming quarters. Dover's 8% revenue growth included organic growth of 3%, acquisitions providing 2%, and foreign exchange accounting for 3%. The organic growth rate was led by an 8% gain at Fluid Management, predominantly in the Energy platform, and a 7% grain in our Global Product Identification platform. We continue to anticipate organic growth for 2008 to be in the mid single-digit range. Our business leaders produced solid first quarter results, and with a positive book-to-bill posted at all four segments we are positioned for a strong second quarter. Those businesses that are reliant on the domestic economy are keeping a keen eye on their customer market trends and are prepared to quickly implement contingency plans if required. The more global Dover companies have seen improvements in activity in Europe, South America and Asia. Material prices in general are treading up, especially steel, and our companies are implementing price increases and securing fixed price supply contracts on some key materials. The following comments will provide some additional insight into our segments and operating platforms. At the Industrial Products segment, which accounts for 31% of Dover's revenue, sales were $583 million, up 6% over last year, with bookings of $624 million or a 1.07 book-to-bill. Earnings of $76 million were up 8%, generating a 13% margin, up 30 basis points over the prior-year period. Positive double-digit leverage was posted at both the Material Handling and Mobile Equipment Platforms. The Material Handling platform recorded increased sales and earnings of 4% and 5% respectively. Quarterly bookings were $264 million with a 1.04 book-to-bill. Warn posted increased military sales related to the MRAP program, and their branded equipment sales were strong internationally. Texas Hydraulics posted increased sales to mobile cranes, especially Material Handling OEMs, that are serving international markets. Paladin posted its best margins for the year in March as downsizing and cost improvement initiatives began to show benefits. Demolition, recycling and utility markets continued to be very strong, but light and heavy construction markets continued to struggle. DE-STA-CO results reflected a strong European automotive market offset by a much slower domestic automotive activity. The Mobile Equipment platform increased sales by 7% and earnings by 16% respectively, primarily driven by Heil Trailer and Sargent. Quarterly bookings were $360 million, and backlog is a strong $575 million. Heil Trailer posted strong results, driven by specialty oil field trailers and military fuel trailers. Sargent's improved performance reflected strength across the majority of its aircraft businesses, and earnings improved due to the cost savings from 2007 restructuring initiatives. Heil Environmental was down slightly from the prior year, but continues to have a strong backlog entering the second quarter. Rotary Lift posted nice sales gains, but earnings were impacted by significant steel price increases in China. PDQ's improved performance were driven by their new tandem friction car wash system. Turning to the Engineered Systems segment, which accounts for 28% of Dover's revenue, sales were $522 million, up 6% over last year, with bookings of $550 million or a 1.05 book-to-bill. Earnings of $64 million were up 25% with a 12.2% margin, up 180 basis points over the prior year. The Product Identification platform posted sales and earning gains of 12% and 29% respectively. Product Identification posted very strong 7% organic growth for the quarter. Markem.Imaje, which we refer to as direct coding, continued to produce very positive operating results and experienced strong business conditions in Europe and Asia and is optimistic with opportunities identified in the North American market. Labeling requirements for fast moving consumer goods should continue to fuel sales of [inaudible]. The Bar Coding Group, which includes Datamax and O'Neil, posted improved results led by increased sales of tabletop printers. In the Engineered Products platform [ph], sales were 2% year-over-year with earnings down 2% over the period. Hill PHOENIX continues to achieve share gains with new customers utilizing its market-leading sustainability products. Sales to Wal-Mart are anticipated to decline in the second quarter, but we remain optimistic about improvements in the second half of the year. Growth in specialty case sales to retail food chains reflect the consumers’ increased spending on prepared fresh foods. The brazed [heat exchanger business posted strong Q1 results, and long-term contract wins at three major OEM customers will maintain future growth. Price management is offsetting significant material price increases. At our food equipment companies, we saw declines in both our sales and earnings due to a reduction in can-necking projects compared to a very strong prior year, partially offset with earning gains at Tipper Tie and Unified Brands. Trident posted positive earnings as we benefited from the fourth quarter restructuring and headcount reductions. At the Fluid Management segment, which accounts for 22% of Dover's revenue, sales were $401 million, up 12% over the last year, with bookings of $431 million or a 1.07 book-to-bill. Earnings of $85 million were up 15% with a 21.2% margin, up 60 basis points over the prior-year period. Positive double-digit leverage was posted at both the Energy and Fluid Solutions platforms. The broad-based Energy platform is off to a strong start with first quarter sales and earnings gains of 12% and 19% respectively. High energy prices, increased drilling activity, strong oil and gas consumption, and new global power generation projects continue to provide a very positive climate for these companies. Double-digit sales and earnings gains over the prior year were posted at all Energy companies. Increased steel prices are being offset with volume related manufacturing efficiencies and price increases. During the second quarter, Dover will be hosting an investor visit at U.S. Synthetics in Utah to give added insight into Dover's Energy platform as well as the long-term outlook for the world energy market. The Fluid Solutions Platform reflected gains from their global footprint, predominantly Europe and Asia, to post gains in sales and earnings of 11% and 27% respectively. These companies are also establishing operations in India to fuel future growth. At OPW Fueling, Vaporsaver sales in China have significantly increased in advance of the 2008 Olympics. Wilden, which also includes the Almatec and Griswold brands, and Blackmer, which has the Mouvex and [inaudible] brands coupled with the new acquisition of Neptune Pump were consolidated into the new Pump Solutions Group, which will provide the focus for seeking operating synergies within our pump companies and to offer our global distribution a broad array of pumping solutions. The Pump Solutions Group will also be highlighted as part of the previously mentioned May Investor Meeting with a visit to Wilden in California. At the Electronics segment, which accounts for 19% of Dover's revenue, sales were $352 million, up 10% over last year, with bookings of 360 million or a 1.02 book-to-bill. Earnings of $36 million were down 2%, but included roughly $3 million of restructuring expense at European operations. Knowles saw nice first quarter gains in its hearing aid market and is very encouraged with the broadened applications for its acoustics technology and new ear bud applications. Knowles continues to gain design wins with its MEMS microphone technology and cell phone OEMs. Industry leaders continue to project a 10% growth in total worldwide cell phone production for the year. The Ceramic Products Group had a strong quarter and set a new quarterly bookings record. DEK posted double-digit gains year-over-year and they continue to roll out new products that are well accepted by their customers. Everett Charles is encouraged by recent semicon related orders that will impact the second half of the year, but continues to right-size its European operations. In summary, we strongly believe in the positive direction Dover is headed and are confident our new organizational structure, strong cash generation, capital allocation priorities and focused on synergy initiatives will continue to post positive results. Dover’s strong global presence in Energy, Product Identification, and Fluid Solutions, which account for close to half of Dover's earnings, are the primary drivers of our future growth. We're very pleased with our first quarter results and continue to be quite positive about our upcoming quarter. Based on our strong first-quarter results and our confidence in the upcoming quarters, we are raising our annual guidance to a 12% plus increase in earnings per share for 2008. Lastly, we are very excited to be hosting the upcoming investor visits at U.S Synthetics and Wilden Pump in early May. This will give the attendees a firsthand glimpse at the world-class manufacturing techniques being deployed within our operating companies that are driving Dover's improved results. The presentation will also provide insight into the market drivers of the Energy and Fluid Solution markets. With that, I'll turn it back to Paul Goldberg.

Thanks, Ron. At this point, we’d like to ask Jackie to compile the questions. Question and Answer

Thank you. [Operator instructions]. Your first question is from Shannon O'Callaghan with Lehman Brothers. Please go ahead.

Good morning, guys.

Good morning, Shannon.

Good quarter.

Thank you.

Hey, on the comments around the bookings improving through the months of the quarter for... I guess that was for the overall company, and then with Everett Charles in particular you mentioned they were encouraged by some of the orders they have been saying. Can you just fill that thought out a little bit?

Well, you are correct in your observation. We talked about Dover's bookings improving month-to-month through the quarter. In the Electronics group, certainly specific to Everett Charles and just that industry in general, it always starts out a little bit slow at the first of the year. It gets to the Chinese New Year and starts to find some [inaudible]. I would say that we had improving orders quarter to… I think month-to-month in Everett Charles and we were encouraged by some semicon equipment orders that happened in March that we’ll ship in the second part of the year. I don't think that we want to sit here and say that we see a significant boom happening in electronic technology than say it has a positive bias looking at it today from where it has been for the last few months.

Okay. And then how about for the company overall, it sounded like bookings generally were sort of improving through the quarter?

Are you speaking to Everett Charles again?

No, I'm sorry, for the broader company. I mean is that sort of the way you saw the quarter flow, I thought you said that at the beginning of the call?

That is the way we saw the quarter flow. You're correct that we saw improvement month-to-month pretty much across the board in Dover, certainly in light of what is considered to be a failing economy going on. I think you know certainly the U.S market is slowing its growth pattern, but I think we have been able to offset that in Europe and Asia and overall show growth throughout the period.

Just a couple of questions on Engineered Systems. I mean it's... it looks like a little bit of a split story there. Can you give a little more feel in terms of why you think you are doing so well in product ID there? I mean 7% organic I think is pretty good for the quarter. And then I guess Hill PHOENIX must be having a tougher time, you mentioned 2Q, I assume it was tougher in 1Q. Can you explain that sort of first half, second half dynamic in Hill PHOENIX and why you expect it to be better?

I think we're very pleased with the 7% organic growth that was posted by our Product Identification group. I think it continues to show that they are probably gaining share in that market overall. I would say that the integration activities that they have done over the last few months are starting to pay off. We now have the consolidated... the sales force consolidated and that's been very key to our customer interface. It basically puts one voice on all the product offerings of our direct coding group. We are expanding that into the supply chain, logistics and focusing on the logistics now. But the integration is going very well, I think the product offerings we have, certainly the Imaje 9000 series I think has been a wonderful product introduction and I think they are just gaining share and gaining acceptance from that. But overall, just a very well focused integration activity between those two companies. Speaking to Hill PHOENIX, certainly we continue to be encouraged at new accounts that they are able to get trial product in as well as new product orders related to the sustainability initiatives. And just to give you a little frame of reference on this, so many Second Nature systems they put in, if you consider a traditional display case may require 65 pounds of coolant, you basically get away with 1 pound of coolant in a Second Nature recycling system that they have for their refrigeration and you certainly hold down the piping, you put this in a much local… much more local frame. I would say that right now, certainly with Wal-Mart going down a little bit in the second quarter because the timing of Wal-Mart shipments is where the markets at, we feel very good about the second half. Orders were strong in March, we continue to be told by their major customer, be prepared for a strong second half. We will see if that materializes, but we feel pretty good about the second half there.

Can you just give a little scope, I assume it was probably down given what the overall segment was, it was probably down organically in the first quarter. Are you looking it to be down organically in 2Q and then up in the second half by a decent amount or how does it work?

I think in general you are directionally right there. I don't have the specific number in front of me, but directionally, yes, you're right. I think we would probably see a little bit of organic diminishing in the second quarter, but then pick back up in the third and fourth. But keep in mind, we had a strong second half last year also.

Okay. All right. Thanks, guys.

Thank you, Shannon.

Thank you. Your next question is from Nigel Coe with Deutsche Bank. Please go ahead.

Thanks, good morning.

Good morning, Nigel.

So, the creation of the Pump Solutions group, the integration of Markem into Imaje, how far through this in terms of the restructuring process are you? And given the pay back from the… I mean it looks like you’ve got some pretty good payback from these actions. I mean do you see upside to the initial guidance from the savings?

Well, I think certainly we believe that there is upside potential in putting these companies together because in many cases we have distribution opportunities, in some cases we have significant opportunities to look at the manufacturing footprints of these companies to look for scales of economy. So I would say that we certainly believe there is going to be return and we wouldn't be investing the time and energy to do this because this is different than what Dover's culture has been historically. So we believe to compete globally and to put out the investments we have to make… to put a footprint down in all these countries, we have to be smarter about our capital allocation. So I feel that these things will pay off well. And probably, as encouraged with the Fluid Solutions group as I would be for the Product Identification, they both have great opportunities, great global footprints, both those companies have over 50% of their sales internationally, and I think just a great growth potential story coming forward. The work that took place in Product Identification, even though their sales and earnings held up well through the last year, we encourage cost putting those two companies together and the benefits of that I think displayed themselves in the first quarter, will probably build through the course of the year.

Hi, Nigel, this is Rob. We do expect more of a pickup in the latter half of the year from the integration efforts. Basically, we have been cost-benefit neutral in the couple of… first quarter. We expect that trend to continue in the second quarter. But towards latter half of the year, we see a pickup, more benefits and lower cost structure. So by the end of the year, we probably will be up $0.01 or $0.02 out of the integration of effort at Markem.Imaje.

Okay. And the $0.05 plus uplift through full-your guidance, I mean is that coming primarily from a better topline outlook or is that coming through mainly at the margin?

Well, a little bit of both, Nigel. I think we continue to… if you think about Dover's traditional history, we’ve always been stronger in the second and third quarter. And I think there is certainly some topline dialed into that thinking. I think also we believe that some of these synergy actions will be additive in the second half of the year. As we've been saying, it will be back-end loaded, so it tends to probably be more second-half event than first half. So that's what buoys our confidence.

Okay, great. Two more quick questions, if I may. It looks like you bought LANTEC for about 1 times book, which is a great product. Is that indicative of the kind of multiples you are seeing for the smaller deals? And are you seeing similar trends with the larger targets?

Well, I would not want to say that we have seen acquisition prices across the broad change in general. but I would say that each of these three acquisitions that we have announced year-to-date were all seller-led processes that we were in there early, we were working with those companies, they got to know Dover well. We won I think the hearts of those people and saw Dover as the right home for their companies very early. These were not processes that went through traditional auctions, and we bought those at nice prices. That's why we see them being accretive in the first year. And we are probably collectively at a multiple of earnings of perhaps below seven.

Okay. And then finally, you made some pretty bullish remarks about Everett Charles orders. But [inaudible] that the book-to-bill ratio for Everett Charles is better than what we see coming through on the semi data?

No. I wouldn't say it's significantly better. I mean you get spikes based on when they get particular orders in their semicon equipment just because of the size of that, but I would say we are kind of keeping pace. Again, they had a favorable book-to-bill semicon data, kind of goes up over this period of time. So we're encouraged, but I think I'd like to see a little bit more of April and May before you get too bullish there.

Great. Thanks a lot.

Thank you. Your next question is from Scott Davis with Morgan Stanley. Please go ahead.

Good morning, guys.

Good morning, Scott.

Hi, Scott.

Nice start to the year. Share buyback certainly makes a big difference, also which is nice. I am not sure, I may have missed it because obliviously there is a lot of moving parts, but I'm not sure I heard you mention anything about Paladin and the impact there, I know it hurt you pretty good in '07. Is that off to a better start in '08?

Well, Paladin is really a tale of two businesses. As we have said all along, heavy construction certainly has been challenged, light construction so far this year has not been overly strong, but the utility, demolition and recycling businesses have held up very, very well. In fact, I’d say, our demolition and recycling businesses is booking orders at a very nice rate. I think the integration actions as we said last year that we took to improve the performance of the company is starting to show benefits now to roll into 2008. We did a lot of spending to shut down plants, lay off people. I think the headcount of that company is probably down well over 200 people. There will probably be additional actions to right-size the company, but I would say in general we're just finally seeing the product mix relate little bit more to demo recycling area, and the integration activities have… starting to bear a little bit of fruits. So, we are buoyed by the fact that that I think we've got our hands around it now.

Okay. On the acquisition activity, again I know Nigel asked about the deals that you did this quarter. But what... is there more activity, are there more things you are looking at? I know it has been a... since… [inaudible] Markem, there hasn’t been a lot interesting transactions at reasonable prices. Is this starting to get… is anything in your sights that may be a little bigger or more interesting and maybe some of the things you have done this quarter?

Well, I think we are still in little bit of an unsettled climate, Scott, on acquisitions. I think there is still a situation where we’ve got a bit of an unsettled economy out there. We don't want to pay a high premium for any of those acquisitions that might be coming on-stream currently. I would say, we continued to be engaged in review processes, but we don't have a… what I would call a strong pipeline of potential acquisitions running into the second quarter. So I wouldn't anticipate any significant announcements into the second quarter. For the rest of the year, it's a little bit early to call what will happen. But I think that if you think about last year, we ended the first quarter at about $100 million in acquisition investment. We ended year around $275 million. I think this year we have announced a $100 million year-to-date that included two that happened after the quarter. Probably, you ought to think in terms of maybe 300, 400, it tops on our acquisition spend this year, but it's way too early for me to lay that out. But there is nothing big in the pipeline at the moment.

Okay. And last question, just trying to figure out exactly what's in the 16% EPS growth, the... was… I assume there was a positive impact from currency in there. If you can quantify that, it's helpful and then also pension.

Pension is probably modestly positive, but not a bit factor in the EPS side. The biggest single… probably $0.01 of that is that and then we did obviously have a favorable impact on the… in the overall EPS improvement from the share repurchase.

But no impact from currency?

Our currency was probably positive to the extent of about 3 percentage points.

Okay, super. All right, thank guys.

Thank you.

Thank you. Your next question is from John Inch with Merrill Lynch. Please go ahead.

Well, thank you. Good morning. Frank D'Amelio - Chief Financial Officer Good morning, John.

Good morning. So, Ron, to get to the mid-single digit organic growth this year, again just on an overall basis do you see this cycling up sort of over the course of the year in terms of your organic growth results? I mean how do you want us to think the overall trend? You have got some easy comps I think in the second quarter.

Well, I think with our acquisition spending down and acquisition spending tailing off in the second half of last year, that will tend to flow more of our sales into organic. I think the offset to that might be Hill PHOENIX in the second quarter a little bit. But I do believe that at least our primary businesses, if you think about our Energy businesses, you think about Product Identification, you think about Fluid Solutions, those things continue to have I think growth potential ahead of them. They will be the items that will lead our organic growth over the remaining quarters. But I think we will see improvement in that throughout the course of the year.

And Ron, just to kind of be clear about sort of your commentary vis-à-vis the booking trends and so forth, where these businesses… I mean did you see the overall businesses actually strengthen as the quarter progressed or is this a comps issues? I mean I am just curious if any businesses within Dover strengthened and if any weakened as the quarter progressed?

I would say that, yes, we feel that we did see strength as the quarter progressed, again from an order activity and also from just a performance view. I would have to say that period-to-period, we saw improvement that's typical as we go through the course of the year. We typically bill late in the first quarter, ahead in the second quarter with nice performance. And I think that’s going to be traditional again this year.

Okay. And then the bookings and backlog, be up 6 and up 8, do you guys know what that was on an organic basis and how that would have compared… so x currency here, and how that would have compared to sort of the fourth quarter trends?

We probably don’t have succinct breakdown on that, but I would say that just… it would probably parallel, kind of what we are saying the majority of it would probably be in organic companies. Again, the acquisitions wouldn't be adding a lot into the booking side of that because none of these companies were large in size.

Will it be fair though that currency is like what, 3 points or something of the 6 and the 8?

Yes. And I would say that what we know right now in our mix of sales, I would anticipate significant change in that.

Okay. So, that's consistent with our mid-single organic. I guess then last question, so United Technologies is buying [inaudible]. You didn't talk about… I know you didn't talk about Triton, but I mean how do think about that business? I know it’s small, Ron, but I mean is that a keeper or just this UTS acquisition all of a sudden somehow make it little bit more attractive in the context of where they are thinking the industry trends?

Well, I think at least, Scott, we feel comfortable we’ve got our hands around Triton. It was positive in the… during the quarter in terms of contribution. I think that probably the new management team down there has been able to finally get their hands around the business, get their rightsizing or downsizing cost is somewhat absorbed. So, from that standpoint, John, I think there is certainly no bleeding going on there. Well, it's a long-term keeper to Dover. I think we will continue to evaluate that and see what the market opportunities are for that business.

Understood. Thank you.

Thank you. Your next question is from Stephen Tusa from JPMorgan. Please go ahead.

Good morning.

Good morning.

Hi, Steve.

So the incremental margin was pretty good at around 20%. And I am just kind of looking at that in the context of your guidance, and I just want to try and reset that. I mean when you… after this quarter when you look at share count, that's getting you $0.22, $0.23 this year, and so to get to the low-end kind of 12% plus, you need probably about $0.15, $0.16, which… on that 20% incremental, which probably should get better in the back half, I would think if somebody's savings continue to ramp. That implies really an organic growth rate of around 3%. Is that the right way to look at it that the… you guys could miss that mid-single digit, which most people think about is around 5 and still hit the low end of your guidance? Could you still have 4x and maybe a little bit of acquisition benefit going for you as well, which I’m not really throwing in there?

Well, I think certainly a bit of unsettled economy out there, but directionally I think you're somewhat in line. I don't know that I would see organic growth stabilizing at 3 for rest of the year. But right now, we still would remain confident that we will see that in mid-single digits. But directionally, I think your thinking is correct.

Right, and you are saying that it should be better than the 3%?

Absolutely.

With Energy and Product ID and somewhat of a tax stabilization. So if it looks likes that you guys will be able to hit this number, I mean your stock said, I don’t know, 12.5 times earnings, which is a dramatic discount to my group and even some of your more direct peers. You didn't talk a lot about acquisitions. Is this still a… priority number one is still buying back stock here?

Certainly, I think during the second quarter you're going to see that continue to be our focus, and I would say looking at the rest of the year we continue to feel our cash generation is going to be strong, the acquisition pipeline isn't overly buoyant at the moment. So, it's likely that that would continue. So, I think we have a very high-quality story to say for the remainder of 2008.

Right. And then one more question, just more specifically on the energy markets. Book-to-bill was pretty strong in your Energy business and it's becoming a increasingly sizeable part of your portfolio. Is there anything that… out there that your customers are telling you that makes them worry that… about the process for the energy market or do you really think this is kind of the start of a re-acceleration in that business for the next, 1 year or 1.5 year?

I think we're going to see the energy market continue to hold itself very steady. If you look at the gains that we’ve posted in Energy, sometimes I would have to say, I don't like to use the word surprise because that would be the wrong term, but I guess I’d have to say I am very pleased with the amount of gains we continue to show quarter-over-quarter in Energy when you consider we've been running at a good solid rate now for quite some time. So, I think it's pretty impressive to continue to build on what is a solid baseline business. We do see that continue to grow through the course of the year. We're adding significant capacity in those businesses to ramp up to meet the demands of the marketplace, and we continue to be very bullish about the long-term growth potential. They've got to always be unique discrete events that could cause the business to maybe alter its growth rate period-to-period, but long-term I think the Energy play is going to continue to be there with no significant signals that concern us. And again, I think we're going to bring in an expert to speak at this visit we're going to have in Utah with U.S Synthetics that will give a good overview of the world market, but I think will help people kind of see why we are so bullish on this market long-term.

Right. And that's across the board artificial lift, the bit inserts and your process industry pumping out stuff?

Absolutely, Steve. It’s across-the-board, all of those companies have improved their performance period-over-period and I think it's one that we would anticipate continuing through the course of the year. We just don't see anything yet that’s going to stop that.

Great, thanks a lot.

Thank you. Your next question is from Wendy Caplan with Wachovia. Please go ahead.

Thank you, good morning.

Good morning, Wendy.

Hi, Wendy.

We saw that you did some share repurchase this quarter and $300 million roughly remaining. Can you talk about the Board's appetite for additional reauthorization?

Well, I think certainly our Board looks at the economics of share repurchase versus acquisition as we do. We present them with those opportunities through the course of the year. They certainly have been supportive of share repurchase because they've been a nice investment for Dover to invest in itself. We believe in our future performance opportunities. We believe that the Dover stock will have greater value going forward. So, we have invested in ourselves, and I think we will continue to look at that as an opportunity.

And Wendy, I'll tell you why, year-to-date we are about halfway done with that program.

Okay. Thank you, Paul. And finally, the new pump group, can you address kind of strategically where you think you're going with that group, maybe where you are focused in terms of the types of pumps that you're looking at, and market served applications, just to give us a feel for the growth in that space?

Wendy, what we have is we have a broad array of pump companies that are from air operated double diaphragm pumps to vane pumps to metering... diaphragm metering pumps to specialty [inaudible] semiconductor industry to Lobes, I mean there are just quite a wide variety of things that we have in our quiver in the pumps group. So I think we know as we put those together in a group, it gives us clout to go to get the best-in-class distribution probably throughout the world to handle these great brand names. And if you look at companies like Wilden that have had a very strong footprint in Europe and Asia, a very… a company that does know how to perform very well in any international climate, it allows us to take these brands, immediately put them in the distribution and gain sales just by exposing to international markets that maybe they weren’t able to do on their own. We then can take and leverage the internal manufacturing capabilities and the sourcing capabilities that we have and change the cost base of these companies, which I think is going to be impairing over time also. Again you're going to… the investors that come to the meeting in California Wilden are going to get a much deeper dive into our Fluid Solutions platform. I think it will show you and be much more self-obvious as to why we put these companies together and the opportunities we have going forward.

Thanks, Ron. But it would be fair to assume that it might be an area that you would like to grow through acquisition as well.

I think the pump market is a huge market globally and it is also a very... a market that has lots of players in it and lots of niches to play in. And I think as we look at it, we have some very high-quality, nice margin pump companies, good growth potential, and we see that as an area that we can lever up the skill set we have and build an even bigger platform than we have today.

Thank you so much.

Thank you. Your next question is from Alex Blanton with Ingalls & Snyder. Please go ahead.

Good morning, Alex.

Good morning, Alex. Alexander Blanton - Ingalls & Snyder: Good morning. [inaudible] pick up my phone here. I just wanted to ask you what the... you have increased your guidance a couple of percentage points and I wanted to ask you what your economic assumptions are both for the US for the rest of this year and also for your important foreign markets?

Well, I think we continue to be probably more cautious on our US market. Let's say, we have seen pullback or if we have a change in growth rate, it has been more domestic. However, I'd say some of our companies that are very internationally based, again let just take our Product Identification group as an example, now that we own Markem and been able to merge those companies together I think it gives us a much stronger interface in our domestic economy. So, I think as opportunities become available I think we will probably reap benefits and have share gains in that area. I think outside of the US, Alex, we see Europe as continuing to be a stable market with opportunities. We obviously have some strong players in those markets. Asia we see as a growing market continuing to be a positive market, and where we play outside of those three major areas we see positive opportunities, particularly in South America and some of the other parts of the world. So I would say, our overall views of... if things maintain themselves relatively as they are, there is not some dramatic shift in the global economy where our comfort level as to where we see the rest of the year is pretty decent.

Also, I think we have a pie chart in our offerings that we spend [ph], and there are materials that show the global distribution of Dover sales and it shows that the growth rate has increased in Europe and in Asia and somewhat of a decline in the United States. And I would say that that there is two things. One is the economy itself in each of those geographies, but the other I think is the international focus we are putting in our company. So I think you will us continue to somewhat grow in line with the pie chart you are looking at. Alexander Blanton - Ingalls & Snyder: Right, but if we have a recession later on this year or if we are already in one that gets worse as we go through the year, have you taken that into account in your guidance, I mean specifically or explicitly or are you simply rolling up to individual forecast of the company?

No, Alex. We certainly are reviewing those forecasts from our companies. We are looking at the economic signals from each of the geographies and we’re quite comfortable with the guidance we're giving. Alexander Blanton - Ingalls & Snyder: Okay. Thank you.

Thank you. Your final question is from Terry Darling with Goldman Sachs. Please go ahead.

Just wanted to talk a little bit about raw material pressures. Ron, I wonder if you could remind us what raw materials as a percentage of cost of goods sold is?

Well, certainly, as you look at raw materials, that is the lion’s share of our cost of goods, I don't have the roll-up number, [inaudible] hand to me, but quite candidly, we're seeing right now probably a scale of inflation in steel that kind of reminds me of 2005. We're seeing steel companies raise prices on more than one occasion through the course, at least from what we have experienced at some of our commodities this year. Plate steels, specialty bar and castings are certainly where we spend the majority of our dollars. In those particular cases, the plate steel is going relate so… first and foremost probably to companies like Paladin, companies like Heil Trader, Heil Environmental. I would say that especially bar relates to our sucker rod companies and our casting is just all over the map at our pump companies and lynch companies and so forth. Those are the people that I think right now are having to find sales of economy within their manufacturing base as well as move on pricing to stay ahead of the curve on steel. But… so that's really the thing that’s ramping itself, and I don't know, you have something to add to that, Paul?

Yes, Terry, for the quarter we calculate the raw material price increases probably impacted us a negative $5 million. So everything you are seeing as a totality absorb that. We would probably project that kind of a pattern over the balance of the year on a quarterly basis. It will fluctuate some. Asia has probably been more of a challenge that we anticipated. In a lot of these cases, however we are getting price increases and are trying to lock in prices as far as we can to mitigate the impact of raw material cost. But I would say for the quarter, it's been roughly a negative impact all-in of $5 million, which clearly we've absorbed in our margins. So the total impact has been not that significant and we continue to expect to be able to manage them on that for the basis for balance of the year.

Well, help me understand what I… what you just told us. Are you saying that the year-over-year increase in your raw materials is 5 or are you saying that on a net basis there was a negative 5 net of price on a year-over-year basis?

Net basis.

Okay. And given how one would assume that you recovered to a greater extent in 1Q than you would be in 4Q, why would you not build into your forecast a greater raw material headwind as we move through the year, particularly given the slowdown in U.S. and Europe end-markets that we're seeing?

Terry, I believe our companies are doing that, and in particular each of their forecasts are considering the headwinds of material price increases and overlaying that with whatever kind of productivity increases they can bring forward or the impact of their pricing action. So, I think it is very foremost in the minds of our company leaders. I'm probably hearing more about that in the phone calls I'm having with them, certainly in the latter part of the quarter that early in the quarter, and I'm very comfortable that each of our people have been a lot more focused on pricing and getting… trying to push out ahead of this curve as much as they can. I think that certainly Dover is not going to be unique and material price increase is going to impact everybody in the industrial marketplace. So I guess short answer to your question though is our companies are considering the impact of price increase as they forecast their numbers to us.

So maybe the way to ask this is I guess you are depicting a negative $20 headwind for the year in the current guidance. What was that number in the prior guidance?

Probably about the same, not… it hasn't changed a whole lot, I would say. It's one of the things that’s managed locally. So for us to give you a precise calculation is not that easy. But I will tell you, based on the forecasts we've reviewed and the updates we get from the operating companies on a monthly basis, they're very cognizant of the need to maintaining pricing discipline. And to the extent they have raw material increases I think they have been very aggressive in working that process through their pricing models and frankly re-sourcing where they can to keep the pricing down on raw materials.

There was really --?

Actually, there probably could be some impact… excuse me, some pickup of that in the second quarter. But I think there has also been pricing actions that has occurred in the late part of the first quarter that will kick in and cover some of that. So the net-net might be up slightly, but I don't think we're going to see significant change there.

What's really changed then is your accelerating price and productivity efforts?

There’s always the timing issue and I think it's a function of you get the price increase on your materials faster you’re pushed [ph] on the marketplace in many cases. You may estimate your material prices increase is going to be 3% to 5% over the course of the year and you put extra pricing on that. If those prices start become more in the 7% to 9% range, then you have to readdress your pricing I think and you find productivity improvements will absorb that. So, I think that's kind of where we’re at we are right now. I think people are looking at it and saying, did I do enough on pricing? Do I have more opportunity? And I would say right now, the majority of the price increases that came about probably will impact into the second quarter, maybe more in the first quarter just from a timing standpoint.

I think just to add one final thought, many of our companies unlike… I would go back three or four years when steel kind of caught a lot of industry a little by surprise, I think our companies are very actively engaged in pricing studies of their business and their overall modeling to where I think they have been very effective in managing the whole raw material price increase balance with their product pricing. So, the answer to your earlier question is between productivity and pricing model… pricing factors that I think we are going are to stay on top of this.

Okay. Coming back to that organic growth discussion, I'm wondering if you can take us through, and I'm kind of looking at the chart on slide nine where… so the question is, with this acceleration of organic growth to mid-single digits, could you step us through the four main platforms and tell us where you see the acceleration occurring as we move through the year?

I think if we walk each one of those I think we’d see a little bit of pickup in organic growth in Industrial Products. Again, there we’re finding some headwinds that… in… at Tulsa Winch and also at Paladin. I think we will see some of that moderate as we move forward. If the look at Engineered Systems, certainly almost all of their growth is related to organic, that will continue and that probably will pickup somewhat in the second quarter. In Fluid Management, we have some acquisitions that will come in that will tend to bring the acquisition number up just slightly. But the organic growth side, I believe still you have in our Fluids group as well as in the Energy will continue to be our probably leading area for organic growth. And I think Electronic Technologies will probably see more organic growth in the second quarter than they did in the first quarter. They won't have as much acquisition involvement. So I’d say, those are… that’s kind of the general feel of why we see organic growth going up overall. There is always some unique events in companies. Again we… I think we mentioned in our comments or in our letter that we have some companies that have what I would call lumpiness so to speak, meaning they have big projects and it is the timing of when they ship. Certainly, our can necking company didn't have as big a shipment period in the first quarter as they had a year ago. That created some negative headwind there. I don't think that will repeat at the same level. And the same situation at Electronic Technologies, Pole/Zero is a company we acquired a year ago, again we are very bullish on, we like the prospects of that company over time. Just from a timing standpoint, their first quarter wasn't as strong as it was a year ago. So I think we will see improvements there.

It sounds as if the Industrial Products and Electronic Technologies will be the key drivers there?

Fluid management… the drivers, yes. I think Fluid management will hold at a strong rate.

Okay. Lastly, if I am doing the math right, the corporate expense guidance implies a shift down from around 30 to under 25. Can you help us with what's driving that?

Yes, we had some one-time first quarter contingency and reserve adjustments that we don't expect to repeat, and the professional fees that we had in first quarter were slightly higher than we're projecting for the balance of the year. So, we are confident that the expected reduction in corporate expense on a quarterly basis is balanced.

Great. Thanks very much, guys.

Terry, one other thing, raw materials as a percentage of COGS is 59%.

Perfect, thank you so much.

Thank you. I would like to turn the floor over to Ron Hoffman for any further or closing remarks.

I guess I’d just like to kind of summarize that we are very pleased with our first quarter results, certainly in light of what is a tough economic climate. I still think the economic climate that we are experiencing throughout the world is better than what we read in the media. But I am pleased with our results. I again reiterate, Energy should remain strong, Fluid Solutions is an area we are going to build well on, we are very pleased with our Product Identification group and the progress they are making in their marketplace, and those companies would represent about 50% of Dover's overall earnings. We feel very bullish on their ability to continue to repeat their strong performance. With that, thank you for being the part of our call today. Paul?

Yes. Thanks again for being part of our conference call. We look forward to talking to you next quarter. And for those of you listening who are going to be on our Investor trip, we look forward to seeing you in a couple of weeks. It should be a very good trip. Thanks a lot.

Thank you. This does conclude the first quarter 2008 Dover Corporation earnings conference call. You may now disconnect.