Dover Corporation (DOV) Q1 2019 Earnings Report, Transcript and Summary

Good morning and welcome to Dover's First Quarter 2019 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President of Corporate Development and Investor Relations. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Andrey Galiuk. Mr. Galiuk, please go ahead, sir.

Thank you, Laurie. Good morning and welcome to Dover's first quarter 2019 earnings call. We'll begin with comments from Rich and Brad and will then open the call for questions. This call will be available for playback through May 9th and the audio portion of this call will be archived in our website for three months. The replay telephone number is 800-585-8367. While accessing the playback, you'll need to supply the following access code 5806368. Dover provides non-GAAP information such as adjusted EPS results and guidance. Reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website dovercorporation.com. Our comments today may contain forward-looking statements that are inherently subject to uncertainties, we caution everyone to be guided in their analysis of Dover by referring to our from 10-K for a list of factor that could cause our results to differ from those anticipated in any forward-looking statements. Also we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I'd like to turn this call over to Rich.

Thanks, Andrey. Good morning everyone and thanks for joining us to this morning's conference call. Let's gets started on Slide 3. Q1 organic revenue was up 8.3% for the quarter, driven by very strong performance in our fluid segment, solid trading conditions in engineering systems, and modern improvement in Refrigeration & Food Equipment markets with food retail business, posting top line growth for the first time in six quarters. Adjusted segment earnings increased 24% to $251 million, 230 basis point improvement over the comparable period driven by cost cash and carry forward, good performance on price realization versus input costs headwinds and volume leverage across the portfolio. Adjusted Q1 earnings were up 29% to $182 million and adjusted EPS of $1.24 per share was up 38%. Discrete tasks items added $0.06 of favorable EPS impact. As announced, we completed the divestiture of Finder pump manufacturer, serving the upstream oil and gas industry. This asset is still reflected in our Q1 results and we recorded a loss on sale of $47 million, which reflects the write-off of intangible assets and the elimination of accumulative foreign exchange translation adjustment or CTA as required by accounting standards. Overall, we're pleased to get off to a good start in 2019. Demand remains robust across much of the portfolio. We are delivering on our cost programs, incremental margins on volumes for the most part solid, and we are pleased with the bookings increased in Refrigeration & Food Equipment segment. There remains much to do to deliver on our full year objectives, but it's encouraging to get out of the blocks with positive momentum. And I'll hand it over from Brad from here.

Thanks Rich. Good morning everyone. Let's go through the details starting on Slide 4. Revenue grew 5% to $1.7 billion and as mentioned, it was driven by strong demand in Engineered Systems and Fluids and improvement in Refrigeration. GAAP EPS increased 3% to $0.72. Moving to non-GAAP results. As mentioned, adjusted EPS, adjusted EBIT and margin all increased substantially, reflecting solid margin conversion on growth and cost actions. Adjusted segment EBITDA was $317 million or 18.4%. Key adjustments for non-GAAP results this quarter were acquisition-related amortization, loss on assets held for sale related to Finder and restructuring and other expenses. The EPS increase was supported by $0.06 or $8.4 million of discrete tax benefits versus $0.03 in the first quarter of the prior year. Turning to Slide 5. Let's get into a little more detail on our revenue and bookings results in the quarter. As mentioned in our summary, organic growth was strong at 8.3% with all three segments seen positive organic top line momentum. The impact from FX was a 3.4% headwind. From a segment perspective, Engineered Systems grew $39 million or approximately 6% organically and Fluids grew $95 million or 15% organically on broad-based activity across both segments. Refrigeration & Food Equipments revenue increased $2 million which represents 0.7% organic growth. Organic bookings were essentially flat year-over-year. All-in bookings declined $42 million or 2% versus the first quarter of the prior year primarily due to FX headwinds. Backlog increased 5% compared to the end of Q4, most notably in Refrigeration & Food Equipment. Organic bookings for Engineered Systems declined $33 million or approximately 4% driven by expected reduction in new order inflow in our industrial businesses, particularly, environmental solutions group, which had a large backlog increase last quarter. Organic bookings in Fluids increased $29 million or 4% with strong order activity in pumps and process solutions, while retail fueling and transport continue to work through the backlog from last year. Bookings in Refrigeration & Food Equipment grew $6 million organically. Rich will provide additional color on performance in some of the individual businesses later. Finally, overall book-to-bill finished at 1.03, reflecting healthy orders across our segments. From a geographic perspective, the U.S. our largest market grew 7% organically where we saw a strong growth in Engineered Systems and Fluids. Europe was up 14% organically with strong performance across all segments and Asia was up 5%. Within Asia, China grew 1% organically driven by growth in our Fluid segment offset by a slight decline in Engineered System. The rest of Asia, which represents a revenue base about the size of China for us, grew at 9% primarily driven by Fluids. Let's go to the earnings bridge on Slide 6. Starting on the top. Engineered Systems adjusted segment EBITDA improved 19 million, largely driven by strong conversion on broad based revenue growth across the segment, more than offsetting headwinds from FX. Fluids EBITDA growth of 32 million reflects a combination of robust growth continued margin improvement in retail fueling as well as strong conversion on volume and other businesses. The 3 million decline at Refrigeration & Food Equipment reflects lower volume in Belvac as well as unfavorable shift in business mix. Additionally, our broad base rightsizing initiatives have been delivering savings as expected and improved margins across all segments. Going to the bottom chart, adjusted earnings from continuing operations improved 41 million or 29%, primarily driven by higher segment earnings offset by higher taxes. Interest expense was lower in the quarter. Now going to Slide 7. Free cash flow for the quarter was a reasonably expected negative 13 million, which is an improvement over last year. The first quarter is traditionally our lowest cash flow quarter. In the quarter, strong top line growth was supported by working capital investment of 138 million, with over two-thirds of the year-over-year change, driven by increased accounts receivable. Capital expenditures was 37 million. With that, I'll hand it back to Rich.

All right, thanks Brad. I'm on Slide 9. Engineered Systems had a solid broad base quarter with top line organic growth of 5.8%. Incremental margin conversion in the quarter was very strong driven by volume leverage, productivity improvements and cost actions. Our Printing & ID business delivered strong organic growth with double-digit growth in digital printing. Despite the weak GD prints in Europe, demand in the region is robust during the quarter for this platform. The industrial platform performed well with most businesses posting mid-to high-single-digit growth rates. Our ESG business continued to deliver strong growth on unit delivers. But more importantly, we're very pleased with the traction the business is getting in assistance and software products. TWG and MPG contributed mid single digit growth and margin expansion supported by constructed demands in the respective end markets. Trading conditions in our vehicle services industrial clamps businesses are more challenging largely as a result of input cost headwinds and exposure towards European markets. Going into Q2 bookings for Engineering Systems remain solid. The segment posted book-to-bill above one. In Fluids, the segment posted organic growth of 15% for the quarter with the majority of the portfolio posting double-digit growth rates. Incremental margin was 43%. As volume leverage, increased productivity and cost controls more than offset the impact of unfavorable product and geographic mix and inflation. Our pumps and process solutions business had an excellent quarter with organic growth rate of 10%. Volume conversion was significantly accretive to platform margins as a result of good price and productivity versus cost ratio and improved mix of products and services delivered. Fueling and transport posted exceptional top line growth of 20% as demand remained robust and production performance in our operations gained traction. Margin conversion on volume was improved quarter-to-quarter and we expect that trend to continue to the balance of the year as we track towards meeting our margin objectives that we had targeted in September. Moving onto Refrigeration & Food Equipment, organic revenue was up 1%, improved bookings in the fourth quarter translated into Q1 organic revenue growth of 1.9% in food retail, which was the first positive revenue rating in the last six quarters. Quotation and booking activity in food and retail remain constructive with the book-to-bill of 1.15, particularly in core refrigerated case product line and was in line with expectations in the first quarter. Unified Brands faced slower demand at the beginning of the year in the institutional market, but the environment has been progressively improving and the business has posted single digit growth in Q1. Margin performance for quarter was negatively impacted by volume at Belvac customer mix translation from SWEP and transitory product redesign cost in the food retail as we prepare for a large automation project. If current trends continue, we remain cautiously optimistic for improved revenue performance in 2019 for the segment in line with the expectations we've included in our annual guidance. On Slide 12 reconciles the key components of the comparable 38% increase in adjusted EPS. As we have forecasted, key contributors are delivering on a cost program and margin conversion on growth and to a lesser extent, it's rebasing our share count and tax benefits. As we noted, we've indicated the discrete tax impact on the EPS and consider our -- that'll put us at the low end of our ETR, our expected tax rate for the full year. Reflecting solid demand conditions that we see in the markets, we have increased our organic growth guidance by 1% in Fluids and Engineering Systems, and reiterate our prior guidance for Refrigeration & Food Equipment. Despite the negative 300 basis points foreign exchange translation headwinds to revenue in the first quarter, our full year estimate is 100 to 200 basis points. Dover has delivered on the solid start for the year which allows us to reiterate our full year guidance of $5.65 to $5.85 per share. To wrap up, Dover is maintaining solid momentum as it represented by our Q1 organic growth rate, solid bookings and backlogs across most of our portfolio, and margin expansion driven by volume, productivity and cost initiatives. We continue delivering on our commitments for improved performance, reinvestment in our growth platforms and disciplined portfolio management and capital deployment. With that, let's moving on to Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Andrew Obin of Bank of America Merrill Lynch.

One of the questions we've been getting from investors this morning is that. Very nice beat in Q1. You've raised organic growth number for the year. Yet you kept the EPS. What are the headwinds do you have more concerns about second half, just if you could give us more color about the modeling process here for 2019?

Alright, couple of things. We're clearly tracking towards the top end of the range at this point. I think that we're pleased with Q1's results. And it's always off to get -- it's always good to get off to a good start because we don't want to be in a position of chasing a comparative fourth quarter that we had last year. So to the extent that we're getting in front and we're in front last year because of the fact of production performance and DFS by our ability to a couple of things. If you look at the backlogs, there's some concern about the backlog is going down. But I would tell you that in ESG that particular business grew by 11% in the first quarter. So the conversion and the availability of our chassis was there, so we're able to convert on the revenue side and then you've got the backlog is going down in engineering systems, but we don't find that problematic because order covers in that particular segment goes well into the third quarter. In DFS, as you know, we've been struggling in terms of output. We had a high backlog exit of Q4. Production performance in DFS was excellent. So, it's another business that grew in the high, grew 17% in the first quarter. So, backlogs are going to come down because of production performance. I think the good news on the ESG conversion was the margin conversion rate was satisfactory. I think that we have work to do because we would have expected for the more, the accretive margins and DFS to be higher. I think we've got a plan to track that through the balance of the year. So overall, it's not a question of us being overly concerned about the metrics of backlogs. It's just purely a question of. We've got range -- we've got a range up to 585 a share. We're tracking towards that. We'd like to get another quarter under our belts so we get some visibility into Q4. And I'm sure we'll give an update at that point.

And just a follow-up question, how has your thinking, your stock is up, everybody else stock is up. How do you think about cash in 2019 and within your previous range? And also how do you think about cash deployments in 2019? And has your thinking evolved given that the world is changing?

We don't necessarily make decisions on share place as it relates to cash deployment. I think that we've clearly got a bias for inorganic growth and we've got some things in the pipeline. So to the extent that we can use our available cash, there we will. If we are unable to find inorganic opportunities then clearly we would average in terms of share buyback. So, overall, I think our thinking is consistent on that matter.

Your next question comes from the line of Julian Mitchell of Barclays.

In terms of I guess the Refrigeration & Food Equipment business, margins slightly down there despite the encouraging organic top line performance. How should we think about margins in that division for the year as a whole? And how quickly should we expect those margins to start to grow year-on-year when looking at the balance of 2019?

Okay, Julian. Well, it's moving parts here, right? So part of the margin decline is on translation from our SWEP business, which is levered mostly towards Europe and Asia. So, you've got some translations decline there. Belvac, I think that we went through that in some details end of Q4. We said as part of our guidance for 2019 that we didn't have a lot of visibility for Belvac of the comps in the first half of the year. We're probably going to be poor and we'll see what happens in the second half of the year. That view is not changed. So that is dilutive to comparable margins year-over-year. The Refrigeration business, it's a bit of a tale of two cities. We're happy with the volume being up modestly. So that's going to be helpful to us, but we are doing a lot of work on that business in preparation for a large capital project that we're going to be initiating this year. So, we had some transitory cost on product redesign to allow that transition to happen. I think that we're well beyond that. So, we're thinking that we're probably going to get margin accretion going forward in the refrigeration platform.

And then secondly, when we're thinking about Fluids business, you did take up the organic growth guide slightly. You've got a very tough comp in the fourth quarter coming up. Maybe just talk about how you see fueling and transport playing out over the balance of the year in that context? And any updated thoughts around the EMV build out within the U.S. specifically?

Sure. Well, I think you put your finger on it to a certain extent. We have a tough comp coming in Q4 and we have a lot of visibility into Q4. So depending on how this business develops and how EMV develops over the year, there is an opportunity for us to raise our revenue in that particular segment but we like to see some visibility there and be cautious only because the math works against us in Q4. Comments on EMV, the only thing that's been different for us so far is, we're shipping more full dispensary units than kits. So, we're getting more revenue, but that's actually dilutive to margins. So, we'll take it as it comes. I don't think the total value is about where we'd expected it to be, but I think that the mix that value is slightly different.

Your next question comes from the line of Andrew Kaplowitz of Citigroup.

Rich, Europe up 14%, I think it was up 10% last quarter. You mentioned the strength in marking and coding, digital printing in particular. How are you able to maintain the stable momentum despite the weaker backdrop? Is it just really led by stricter regulation? And from what you could tell does the growth seems sustainable here?

Yes, look, I mean, that's why I put it in the prepared remarks because that's the way that we look it here too. We're getting weak GDP prints out of Europe and we're taking that into account of our own forecast. But I think we'll just need to recognize that Europe is levered towards auto and machinery, and those markets are under pressure. And that necessarily is linked in any way to marking and coding. So, to a certain extent, marking and coding is not part of the process that's giving kind of pressure to European GDP prints. Look, we'll take it where we, as long as we can get it. It ends up being a business like digital printing. All of its revenue is European, but despite the fact that shifts globally. So, it ends up being recognized as European revenue. So, it's a bit of a misnomer to a certain extent.

Okay, let me ask you the opposite question then around China. It seems like China has been decelerating to your little, Fluids up, Engineered Systems down. Can you give us some more color on marking and coding in China? Is there anything concerning going on there? I mean, do you still expect China to be up for the year for Dover on the strength in Fluids?

Look, the environment is clearly slowed. We are up when it was a 1% for the quarter. Right now, I would expect it to be up for the year in consolidation whether it's slightly down in certain segments and slightly up in other. It's hard to say right now because we're working at 100 basis points. But overall, we would expect it to be up for the year. I don't really have a view on Printing & ID at this point.

Our next question comes from the line of Jeffrey Sprague of Vertical Research.

Rich, on the automation project in Refrigeration in particular. Is this something you're going live on now as we speak, I think you said the preparation is behind you? And I'm just wondering about kind of managing through that on kind of a peak season as it were for Refrigeration?

Yes, we're not going to become operational until Q1 of '20. What we're doing now is intervening on the configuration of the product itself to accommodate that change. So, which is part of the question on we've incurred some costs to allow for that transition. In terms of, if the volume goes up, are we going to get caught with our pants down to a certain extent? I think that we're lucky that we have adequate footprints to initiate this project, not at the same -- in the same physical location that we make the product at this time. So, we're reasonably comfortable that we're going to be able to accommodate any shift in demand during '19, if it comes, that we're not going to get caught sideways here.

Right, and on the factory issues in fueling. Are those completely behind you at this point? Or are there still some -- you're always going to be looking for efficiencies, but kind of the big obvious problems are those largely fixed now?

Well, I think that the management deserves a lot of credit in terms of being able to get the throughput out. So part of the reason that the revenue was higher than we had forecasted into one is that we were being cautious in our ability to get the throughput out of those two main principle factories and they got them out. So, that's the good news. The not so good news is. The margin conversion on that volume is not entirely satisfactory. I think that we've got a plan to increase margins throughout the rest of the year. But look, we're able to get the units out and that's important. Now, we need to kind of grind down on efficiency on top of that volume leverage.

Just one last one from me. In terms of like cleaning out the closet from an asset standpoint, I mean, the Finder was a particularly bad deal legacy item obviously. But is there much more that that you're kind of breaking through kind of the smaller assets?

Nothing, that looks like Finder.

Your question comes from the line of Steve Tusa of JP Morgan.

Good execution so far. On kind of the free cash flow, actually better than last year seasonally. How do we -- how should we kind of think about the seasonality of that free cash relative to prior years with everything that's going on? Should it be kind of roughly in line with what would what happened last year? Just kind of wanted to get some color on how 2Q and 3Q we're going to play out.

One would hope that we don't wait till Q4 to get it all like last year and we're kind of progressively -- look, if I look at Q1, the inventory change relative to last year is lot smaller. So, which is a reflection of our ability to convert and I just answer the question about what we are doing in DFS and ESG. So, that's a function of not having industrial inventory because our conversion rates are going up. That I would expect, should improve through the year. On the receivables balance side, I guess it's a question of what do we think about revenues for the year and what do we think about fourth quarter? Right now, I like where we are right now with the strong Q1. I would have -- the fear around here was to kind of get through it and have to have and be forced into a position to get to the top end of our guidance of having another massive Q4. Now, we've brought some room there, so we've got an opportunity to look at how demand and backlogs developed over the year. Quite frankly if we get caught out a little bit on receivables because our volumes way up, I'll take the tradeoff between earnings and receivables. But I think that the core improvement that we can expect here is on the inventory side.

And then just looking back to the fourth quarter and the strong orders. Is there anything -- any kind of pre-buy dynamics that you noticed there based on the tariffs and price increases just broadly?

Yes, it's really hard to say. I think there is probably a little bit of an element of that because we've been trying to get price. So, as we're announcing price increases that drives let's get in front of that to a certain extent. In DFS in particular, I think it's no -- we've been pretty forthright that we were having issues about getting the throughput out of our factories, so that was building up a backlog for us. And that's a lot of what cleared in Q1. So that kind of normalizes backlog, if you will. It's hard to say, I mean I think by the end of this next quarter, we're probably have a really clear idea of where we are. But right now, we're never comfortable, but we feel good about the backlogs that we have across the portfolio.

Okay, one last one on EMV. Any update on kind of the trajectory there accelerating, decelerating the back part of the year? Any updates on the EMV transition?

As you listened to the comment before about dispensers versus kits, it looks like it's decelerating, because the last guys in are going to be kit-only and kind of our kit-only shipments right now are relatively low. So, it seems to be stretching out further.

So, you're already kind of seeing deceleration, but it's a -- like you said before, it's kind of an elongated cycle. So, that's pretty different than what I think was the original assumption six months ago, which was very strong kind of '19 and then drop off, right?

Yes, I think, but you've got -- it's a mix in revenue question. Right now, revenue looks great because we're doing the entire systems right.

Yes.

The margins around the kits and I think it's pretty intuitive, it says the last guys in aren't going to do a complete referb, they're just going to do the kits. So, I think that in our estimates and it's a funny one right, because the revenues less and the margins up. So, it's accretive to margins but dilutive to trajectory and revenue.

Your next question comes from Deane Dray of RBC Capital Markets.

Rich, I was hoping you could give us the update progress report Phase 1, Phase 2, and then on the benefits we see they're lumped into corporate. How will they be spread over the segments for this quarter?

Okay, I think, I understood the first question. I'm going to need some clarification on the second one. Where we are and you're talking about footprint?

Yes, right.

We are -- look, what we've announced, let's consider that Phase 1. Phase 2, we need to deploy some capital, which we're doing now in order to move onto that particular portion of it. So, we're in a little bit of a transition period. And I think if you go back and look at our disclosures from Q4 about how we called out the capital investments that we're making those words to accommodate for their actions into the future. Other than that, that's really all I can say until we're ready to call one of them off, but we're making reasonably good progress. But some of the bigger moves that we need to make require initial capital.

So, the moves that you've made so far and the pay back on those, are we seeing that today in the results today? Because it looks like, it was all being carried in corporate as opposed to…

I know I've got your question. You don't see anything in Q1. That's why, that's not there. This is zero in Q1. It's come for the footprint.

Yes, SG&A is there, if you were asking about the SG&A.

So, it's not like to move the footprint pennies into another block, it just zero.

Got it. And what about SG&A then?

SG&A, about beating a dead horse, we're clearly on track in delivering the objective because of the fact that we started in the second half of the year. You're going to get real good comps in Q1, Q2, then it will dilute in the second half of the year.

Next question comes from the line of Mig Dobre of Baird.

Just want to go back to price cost, I think, I heard you mentioned good price cost in Fluids. Maybe have you comment on the other segments? And how do you think about this dynamic through the year? Your cost specifically, how do you think those are going to progress through the years?

I love it. We have Brad to correct me, but I think that in consolidation, we're slightly negative in price cost in Q1. We would expect to make progress on that through the year as price increases gain traction as we go throughout. In engineering systems specifically, we have done well on price cost. But in consolidation, it's slightly negative.

So, but you said that price cost was positive in Fluids as well. So was it a drag in basically the remaining segment here?

I think it's by platform. So, we're parsing now between individual platform was in the segments. I think the headwinds are in the industrial side, pieces of the industrial side of engineering systems, headwinds in refrigeration and food retail, doing this off the top of my head; and in fluids, I think that were positive overall.

And then lastly. As you think about the full year, do you expect to be positive from a price cost standpoint?

That's our expectation.

Okay, great. Thank you.

It widens out a little bit to the back half.

Our next question comes from the line of John Inch of Gordon Haskett.

Hey, Rich, ESG, so it was a big slug of the organic. You said you have enough back log to work through the third quarter and you're excited, I guess you said about systems and software. Do you expect the bookings to pick backup again? Just I call it out. I realized it's a small business, but it was an outsized impact right to the booking trends this Q. So…

No, it's not that small of a business. Look, we don't have any visibility into Q4 at this point. So, despite grinding down some of the backlog that we had because of chassis availability and good production performance, the number like you know -- that's why it was called out in the presentation, it flexes the whole segment because of the total value of that business and its weight within the sector. We've got a really good backlog. I think that in any other year we'd to be super happy about what we've got. Let's get another quarter under our belt and we can probably say where we are for the full year, but we're into Q3 now which is pretty good.

Yes. I'm just trying to understand. You're not expecting an extending air pocket in future bookings based on what's where…

I have no indication of that is going to happen.

No reason to believe that.

The SG&A stays for the year, I think $72 million. If I thought they we were going to be -- well, we just made an assumption maybe kind of linear, which suggested maybe $0.10 of benefit this Q, but it was 15. I don't want to split hairs, but did you pull some of that forward, which is not a bad problem to have or issue to have?

Yes, I think that estimate, you know, I think that we knew from a comp point of view, it's going to be weighted towards the first half because we had 30 plus in the second half of last year. Getting it down to the millions of dollars, I mean we'll take it as it comes to a certain extent, right.

But there is -- let me just articulate here that, there is a slight difference in presentation just so you aware. The $0.15 is pure SG&A, not reinvestment, whereas before we were netting reinvestment in there, so I'll just clarify. So, the 50 -- we have reinvestment in the first quarter. I'd call it roughly $0.02, $0.03 of reinvestment. Reinvestment will ramp as we said before in this year. So, we're not changing our views on reinvestment. But you're looking at $0.15 in the quarter, which is we take it $28 million. So, you've got to think about that as pre-reinvestment. That will track to the back half pretty solidly except then you get the year-over-year the impact. Remember, we did $8 million in the third quarter, $22 million in the fourth quarter. So, again, I think, we're right on track where we expect it to be, maybe even a little bit higher based on the first quarter $0.15 print.

Yes. I was going to ask, did 72, has it changed? And it sounds like it maybe got up a little bit.

Yes, slightly a little bit better.

Last question Rich. So selling Finder and we're working towards this portfolio, I guess, you're going to have a portfolio coming out partly in September. Can you talk a little bit about just your process? How you're working towards that? Like in other words, presumably there is got to be a lot of depth that occurred to then be able to say look, here is how I'm thinking about portfolio look done this clean up. But how do you go from sort of where you've been to where we're going to be able to talk that? Because I'm really curious how you're working through this?

It's a really long answer. We are looking at future projections and return on invested capital by operating company, right, and then where they're performance relative to their peers and then relative to the market structure. Clearly, Finder comes out like a bit of a sore thumb, so it needed to be action quickly. I don't think that there's anything in the remaining portion of our portfolio that's got remotely the same dynamics that that does. So, I mean, we're looking at it holistically meaning that, it's not a question of portfolio purity, it's purely a question of future returns by operating company relative to their participation in the market structure. That's how I got it.

Our next question comes from the line of Nigel Coe of Wolfe Research.

We covered a lot of ground already so just a few follow-up here. Obviously, great progress on the SG&A initiatives. I'm just curious Phase 2 is obviously more COG focused, but your SG&A is going to be relatively high compared to peers. I'm just wondering, if there's a Phase 2 in the SG&A beyond this year, Rich?

Look, nothing of the quantum that that we've done, right. But understand in the background, there's a lot of what we're doing about these digital initiatives that enhance our ability to consolidate back offices. So but those are longer running programs that were running in the background as opposed to kind of just core let's kind of revisit what we've got. So I think that there is opportunity, but I don't expect that there's a Phase 2 SG&A takeout kind of low hanging Fluids. I think we're just going to have to, it's more SG&A goes into the total productivity equation now as opposed to and standalone. And to be fair, SG&A at Dover as got R&D and I think once we split R&D out of SG&A, we're going to comp better also.

And then, there is a bit of friction around the 1Q setup for consensus, especially as it relates to the Fluids seasonality. So I'm just curious, if you've got any -- recognized you don't give quarterly guidance, but any commentary around 2Q in particular with regards to that how you see Fluids ramping up seasonally? And then maybe Refrigeration margins, how those look relative to the 1Q? Would you expect those to setup in a similar vein what we see normally?

Yes, I mean, I think that the two businesses we've identified, both have a good dynamic in terms of their top line, which is helpful to us improving the margins of those two segments. So, I think progressively through the year, we expect to make progress in both of those particular segments.

Your next question comes from the line of Joshua Burzynski of Morgan Stanley.

I think to those the point of the last question we covered a lot of ground, but maybe just to stick with SG&A for a second. Rich, I think the initial progress there was pretty immediate, once you guys announced it. And I would imagine that, there were probably areas since then that you found maybe a bit more opportunity or perhaps on the other side where there was maybe some indiscriminate cuts. Should we see the shape of SG&A start to look a little different as you refine the program? Are you pretty satisfied with kind of the initial phasing? And how that went across the organization?

I'm satisfied with the organization's ability to undertake, which was a difficult exercise and the speed of which is done. It's never going to end, but this was a particular program that we thought was important to identify and execute on. Once we reach that program limit relative to the restructuring charges that we took, it can foresee that these EPS bridges won't have that SG&A, any other ancillary benefit will rollover into conversion at the end of the day. So at a certain point, we're just going to stop reporting on it once we've reached conclusion, because then it becomes relatively discrete and it's not part of a program, right. What we said back in September is, if we take a charge for it, we're going to report back on delivery for that charge. Once, we've beyond that phase, it's just going to go back into conversion.

And then it's just a follow-up on Refrigeration. I guess similar to what you guys have talked about in Fluid. How should we think about the phasing of the year there? I think orders have been positive for a couple of years. You've built some nice backlog. Do we start to see revenue growth move closer and walk step with orders from here? Is there still going to be kind of another lag in that execution of those shipments?

I don't know is the answer to that. I think that we can see in the backlog, we can see that from a production point of view, we're doing a decent job in terms of getting into that backlog. Now, we're really not seeing it yet in terms of the margin conversion, but I think that we have some transitory costs. I'd prefer to wait till the end of Q2 to kind of get more granular, but we're -- it's a positive thing. For the first time in six quarters, the backlog is up and our revenue went up. I think that we've still got a lot of work to see what that means in terms of kind of pre-industrialization margin performance.

Your next question comes from the line of Scott Graham of BMO Capital Markets.

Obviously, a lot asked, so mine are piggybacks on maybe some clarifications. Is it possible Brad on the ES bookings the organic? If we were to pull out the ESG, what that number -- what that minus 32 would look like?

When I think we can give you that is a follow-up, we haven't to calculate it. We can give you that one offline.

Okay. Secondly, on price cost, I know there was a question asked earlier, but kind of where you stand today with some price, some commodity prices going down and your pricing in? Would you expect at December 31 to be on a full year basis price plus neutral or sort of at December 31, price plus neutral?

I think that we will work our way there. We are slightly negative now. It is highly dependent on price realization. Our expectation is to be positive. I can't give you the quantum at the end of Q1.

That's fair. Last question is related to the Refrigeration business. I know that there is only so much you can say about that, but all of your customers have set their budgets for '19. Is there anything there that they're telling you that is of concern, moving towards more digital spending? It doesn't sound like it or are you just maybe a little bit guarded on saying anything right now or are they seeing anything negative about spending on your product on merchandizing?

No, not negative. I think which is reflective in the backlog. I just think that we're cautious on, they've got a 1% growth embedded in our forecasts would be like to take that off based on backlog. Yes, but I think there were cautious because we don't have a lot of visibility into the second half.

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

So just focused on the Refrigeration business for a second and the full commentary around price cost, I saw that pricing this quarter was pretty de minimis and you guys put the recent price last year effectively. I'm just wondering like. Are you expecting to get more price in that business this year? And then specifically on margins, is your expectation at this point that margins in the business will be up year-over-year?

I think that we're cautious about price realization in this business and our expectation is from margins to increase in the Refrigeration segments of the business. In the segment, I think that we're going to have to wait and see because of Belvac's ability to swing margins.

And then I guess just my one follow-up and just again, just kind of focused on margins for a second in the Fluids segment. Can you give us an update on Wayne specifically and how that businesses doing? And what impact at all that's having potentially to margins as we saw pretty much flat this past quarter?

Wayne, North America is doing very well in terms of production performance and margin.

So, Wayne, North America, okay, international, not as good?

Right, I think that we've been pretty upfront that. Our -- the margin performance between our North American and European operations is quite wide. So part of the area of focus for us, meeting our objectives in that particular segment is to deal with a relative underperformance and in margins in Europe.

Rich, are you starting to see any of that turn it all? Or is this like a longer process and just maybe any color around that would be helpful?

I think, to their credit that the European operations have fixed their throughput challenges. So, that's a big step and getting there, but we got a long way to go.

Our next question comes from the line of Charley Brady of SunTrust Robinson Humphrey.

On Refrigeration & Fluid Equipment on a transitory cost, can you quantify what the margin impact is on them in the quarter end? And if I heard you correctly, it sounds like those are essentially done, so that pressure isn't on the remainder of the year. Is that correct?

No, I can, but I won't quantify them. Our expectation is that their impact going forward will be less than it had been in Q1.

And on the on the pumps business, obviously, pretty strong growth and bookings there. Can you just give a little more granular on we're seeing that? I think in the queue you talk about large in the OEMs, just what's driving that the strong growth in pumps?

It is across the platform. So, it's not any particular business out of the few that are in there. I think that it's just across the entire platform. I think that market demand remains robust and I think that that our businesses are winning in the marketplace also.

Last one for me just on labor and freight costs. It is common what you're seeing their trend wise. Is freight getting any better? Are you seeing a tick down some of the rates? Or is it still tough sledding?

I think we would have expected it to come down, but it's been offset by fuel surcharges. Now, the fuel is gone back up to four bucks a gallon of diesel, so net neutral.

Thank you. That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Galiuk for closing remarks.

Thank you. This concludes our conference call. Thank you for your interest in Dover and look forward to speaking you next quarter.

Thank you. That concludes today's first quarter 2019 Dover earnings conference call. You may now disconnect your lines and have a wonderful day.