Today, we have Rich Tobin, who is the Chairman of the Board, President, and CEO. Rich joined Dover in 2018 from CNH. In the audience is Brad Cerepak, who is the CFO, and Jack Dickens, who is the VP of IR. Rich, as I walk over, I'm going to turn it over to you. I know you have a couple of prepared remarks, and then we'll get into questions.
Great, Andy. Good morning to the Europeans and the Type A personalities here at 8:00 A.M., apparently. Look, I got a couple setup slides. If you took a look at our annual results, these are just repeats, so I won't read them to you. But overall, we've got a constructive outlook leading into 2024. I'm sure you've read about all these issues about stocking headwinds or destocking headwinds. We were on the front foot last year, so we cut production in the second half of the year, and we believe that the vast majority of channel inventory has been reduced. That was caused by a lot of OEMs coming out of COVID, kind of overbuying to a certain extent because of logistics constraints. And then, subsequently, the cost of carry of inventory in the distribution system becomes more problematic.
So, at the end of the day, we think that we're largely in balance moving into 2024. So that's good for us timing our production performance with, with the revenue line, and managing our fixed cost absorption. We've done some acquisitions, which I'll leave that to the Q&A, and we've got we're closing one disposal at the end of Q1. You can see here in terms of let's touch on a couple of these things. CapEx at $193 million at 2.3% of revenue for 2023. We're calling it to be down, into 2024. We've done a lot of work on revitalizing our industrial base, and some and some select capacity expansions. That work is largely done. So we'd expect CapEx, to track down for at least a couple of years unless another large opportunity presents itself.
From an M&A point of view, you can see by segment the gross spending that we've done with it, and then where we've done some disposal. So, reasonably active on the portfolio in and out. And as we had highlighted going into 2023, this was the year that we had targeted to reduce working capital ourselves. So the cash flow for the year was very good. And then if you add on the cash coming in from the disposal, we move into 2024 with a balance sheet as good as it's been, at least in my tenure here. So we've got a variety of different optionality in terms of portfolio in-out, or and/or capital return. We've got some growth platforms. If you came to our investor day in March, here's an update on a few of them.
And you're going to guess, most importantly, without going through the details of each, you can see the CAGRs. So I think that, you know, our investments that we've made, these are organic investments, largely, that we made, in these growth platforms are beginning to pay dividends. So we expect this kind of CAGR to continue to accelerate over the next couple of years. And to wrap it up, you know, we get a lot of questions about the complexity of the Dover portfolio, and I don't understand the pieces. And maybe one piece is cycling down and one cycling up. You know, at the end of the day, we have driven both good top-line performance and good earnings performance over cycles. So I would just say that let's not get all hung up on maybe individual pieces and look at the performance of the total.
If the poor performance of the total has been relative to our peer group has been quite satisfactory. So I think that is it. Andy, back to you.
Rich, I don't understand the pieces. Could you tell about the pieces?
Sure. I'm sure you're going to ask about them. So let's.
So, my first question: you talked about destocking, like, mostly being over, right? A lot of the companies that I cover still kind of seem like it's ongoing. What makes Dover different? Why are you so confident that destocking is basically over for you guys?
Well, a couple of things. Number one, we led into the destocking. So coming out of COVID, if you look at backlog performance and revenue performance, we led out of COVID because a lot of our businesses are subcomponents at the end of the day. So a lot of your clients are our customers. And so if you think about the precursors of building larger industrial goods, in a lot of cases, those are our components, right? So that we started first, the components flow in, they go into finished goods, and then arguably where we stand in terms of the finished goods that are out there as opposed to what a lot of what we supply are subcomponents. That's one thing.
Number two, we got a lot of stick for it last year, but I think that we were on the front foot of saying, this is going to be an issue, at that and that we were kind of vocal about what we were going to do in terms of our operating stance for the balance of 2023 for two reasons. Number one, we didn't want to elongate the issue at the end of the day. Number one. And number two, you know, the one way that we know to protect pricing power is not to get over your skis of having too much inventory. So I think that we took a little bit of pain in terms of operating performance in the back half of the year and ran for cash because we wanted to set up a good 2024.
So yeah, I mean, there's specific areas of the market that are probably long inventory still, but not in the subcomponent side, largely in the finished goods side.
Got it. So Rich, I know how much you love talking about orders, but I'm going to ask you about orders, of course. You know, you said they would stay positive in 2024, but if I look at Q4, they're positive, but they're still running slightly below your sales. So, you know, the question that people ask me is, do you think Dover could start booking book-to-bill over one? And, you know, when would you do that? And are there any segments that stand out as having the best chance of booking or doing book-to-bill over one?
Yeah, I mean, clearly for you and for us, order rates are going to be very important in terms of a metric going into 2024. We don't exactly have the most robust top line, guidance right now because it's there's a little bit of uncertainty. Back to your question of our customers and where they stand in inventory, and then the macro itself is still kind of on not the greatest ground as we wait to see what happens with interest rates and everything else. I would say that, you know, as we said, we gave the guidance out that we only have really one tough comp next year, and it's Q1.
And after that, you know, I think that we're pretty confident that we can accelerate out of there just because of what we mentioned about the core platform growth and the fact that we think that we have the inventory imbalance. So do we get to book-to-bill over one? Yeah, we'll see how Q1, Q1 will be green shoots of where the orders are coming by segment. I think that's going to be important. And then from there, I would fully expect to go positive book-to-bill over one from there.
It's very helpful, Rich. And then maybe just focusing on Pumps & Process , getting that sort of out of the way. So, you know, you obviously have gotten a million questions on biopharma. You did mention there book-to-bill over one. So, you know, what are your customer conversations now? Like, you know, we all follow the Danaher's of the world, and, you know, they're talking about exit rates, from what I can tell, of high single-digit plus growth in 2024, but that's still several quarters away. So what's the conversations like now?
Well, I appreciate that all of them have now given out guidance that's realistic because we were chasing them around for almost two years where I think that everybody was waiting to find a bottom in the biopharma side. So, I think that from what I've seen of those forecasts and our that seems to be a realistic stance, that it's kind of back-loaded, but that we move back into growth. And then there's a question of what that means. I think it's important to understand about our biopharma business, which is a little bit dislocated than from our customers, is our customers are very much levered towards building new units, and we're very much more levered towards those units that have been built and shipped to their customers actually running because what most of our biopharma product is consumable product.
So there is an amount that goes into new builds, but the vast majority of the usage is actually those incubators and the like running out in the marketplace. So the good news is because the equity markets have begun to turn that, in biopharma is very much levered towards venture capital and the equity markets. So those two avenues, because of the reasons that we all know, have been pretty much dead for the last two years. And now you see fund flows looking quite attractive. So that's a pretty good precursor. So what we've modeled into this year is relatively modest because we just don't want to get burned again. We'd like to actually see the orders first.
I would expect that, you know, we're likely to do better than we expected in the second half of the year.
Got it. And that's kind of why you said you don't expect much operating profit growth in 2024, right? It's a conservative view.
Just, we've been following around and everybody's been wrong up until this point. And that's why I think it's pretty healthy that everybody's now tamped down expectations and would rather just see the orders come in and overdeliver. And we're taking the same stance.
So I'm going to try this question on thermal connectors , you know. So I think you said growth expected CAGR in the business over 40%. And if I remember correctly, you did a Pumps & Process investor day. You told us thermal connectors are approximately one quarter of CPC. And so if I did some, you know, quick math.
Ooh, here we go.
I know. I don't, it said thermal connectors might be approaching something like $200 million in 2024. And it's already really moving the needle in terms of orders and sales and Pumps & Process .
I think that's a bit aggressive in terms of the revenue for 2024, but the CAGR is correct. The important hurdle in this particular business is winning the spec first. And because generally speaking, in this particular market, like the biopharma market, once you win the spec, it becomes the adopted specification across a wider swath of customers. So we're in, you know, now we're in pretty good shape in terms of winning the spec. And we think that the follow-on demand for that product, which is a result of a lot of the investment going into—I don't want to say we're an AI company, but just following the investment in total, we should be in good shape. But I think $200 million is a bit aggressive for 2024, but we're happy to do $200 million, if that's the way it turns out.
So I guess it's NVIDIA day. So I should ask you, like, market share for the thermal connectors. How do you think about that? Like.
Not telling you.
Okay. Well, we'll move on then. So you mentioned in your news call that you had a couple of foot faults in 2023 that you don't expect to repeat. I think, you know, given your background, you know, we all trust you on the operations side. So what, if anything, in terms of lessons learned, do you have? And did you change anything in terms of your operations as you go into 2024?
Look, we're doing ERP implementations every year. We probably average about 5 a year, right? And what's driving that is there is an amount of productivity that you can get out of an ERP, but largely now it's all driven by cyber. Quite frankly, you just cannot sit on old systems anymore because of, you know, we all understand what happens in that particular case. And you know what? Every once in a while, one of them goes sideways, right? So I don't expect it to happen again because our batting average in doing these implementations are quite good. But every once in a while, one goes a little bit sideways. And, you know, we took it in March and a little bit of April last year. It's, you know, I don't expect it to happen again.
Very nice. And so you also mentioned recently that you're working on the timing of cost-out transactions so they're not baked into the guide. And I just, I'm not sure if you want to size the opportunities, but can you give us more color into where you are on your major projects in terms of cost-outs?
I think it's just more important in terms of when we look at the levers that can be pulled to drive profit margin expansion, right? You know, it's revenue. Sure, everybody gets that. It's mixing up everybody gets that. And we always have, you know, you know, why does Dover exist to a certain extent, right? Dover exists because we are able to use the scale leverage that we have and provide that scale leverage to relatively small operating companies, right? So we're talking about like all non-customer-facing activities. We're sweeping to the center and we're running those like little factories. And as we do that, we have an ongoing kind of restructuring, whether that's a reduction to white-collar labor and then to a certain extent on the footprint itself.
So I don't think other than the COVID year and probably the so 2020 and 2021, we weren't that active just because for every reason we can understand, it was hard to do that type of work in those two years. Every year we've been taking restructuring charges, largely as a result of gaining efficiency in the operating units. I would expect that to happen this year and and continue to happen going forward. When we're ready, we're pretty good about disclosing. We're taking this charge and this is what it means in terms of EPS enhancement. So you'll know when when we let you know.
Just, Rich, if I could follow up, I think you said at some point recently you were almost halfway through your front office digital transformation, more than halfway in the back office. Like, where are you on those sort of initiatives?
65%-ish. That's kind of on what we have today. But we're adding capabilities all the time. So when we started this, it was just AP and AR. Then we moved to general ledger. Then we moved to expense report processing. The amount of services that we bring expands at the same time as we penetrate the portfolio. So I wouldn't try to get a spreadsheet out and figure it out. I think we've got quite a long runway to go. But what's important is that as we're doing that work, we preserve the optionality for separations in the portfolio, meaning that you're not extracting so much synergy value that if you were to choose to dispose of something, you've got negative synergies, right? So we try to take it right down the middle of the road there.
And Rich, to your point, you're always sort of doing some amount of restructuring, but like as you said, like you maybe took your foot off the gas a little bit on sort of footprint rationalization during COVID. So do you press down on it a little bit more now? Like how do you.
Yeah. Yeah. No, I think that that it and it depends on the business and it depends on the outlook of the business. I mean, we don't run them all the same, right? Some of them have different growth trajectories. Some of them were running for profit maximization. Some of them were running for growth. So, you know, we're adding capacity at the same time as that we're reducing footprint at the end of the day. But yeah, I mean, I think that that right now what I can tell you is I think that we spent 2022 and 2023 more in recapitalization of the footprint and actually and targeted capacity expansion. And not so much footprint reduction. We started at the end of 2022 back on the front foot on footprint, and I would expect that to continue into 2024.
Like ultimately, you reminded us that you've grown margin 410 basis points in the last 5 years. Do you think you could continue to grow Dover's margin like at that 80 basis points plus?
Targets to get to 25. So.
Within a year? Just kidding. Okay. Right. So let's talk about cash flow for a second. You had better cash flow in Q4 2023 as your right-sizing inventory, you know, allowed you to deliver 14% free cash flow as percent of sales, slightly better than your 13% guide. But you mentioned still working capital potential in 2024. So, you know, maybe talk about that and, you know, can Dover do better than that sort of, you know, 13%-15%?
Well, I mean, the reduction in CapEx helps, right? So we've already told you that's coming along. Part and parcel to sweeping AP and AR is to help the velocity of working capital. So you should become more efficient in your processing. And I think that we could continue to grind that time year-over-year. And in terms of the business mix, I think that if you take a look at what we're bringing in in M&A and what we're sending out in disposal has been by and large better working capital performance of those higher margins, right, which always drives cash flow at the end of the day, but less capital intensive. So the portfolio is becoming less capital intensive over time.
Do you, like a lot of companies that I've had on stage, really talked about, you know, building up inventory and drawing it down to pre-pandemic levels to some extent? Is that kind of like what you see? I mean, as an operator, right?
Sure.
You're not going to hold safety stock or anything like that.
Look, the supply chain problems of post-COVID are largely gone. Right? Because there's really two stages to it. There was the post-COVID getting the direct labor back in the factories to actually make the product. And at the same time, a real issue with logistics, right? Logistics repaired itself relatively quickly at the end of the day. So that's not been a problem for a couple of years now. So it's actually been a tailwind in terms of margin performance because logistics costs have come down quite a bit. And so lead times, as lead times have come in, coming down quite a bit. And the argument now is that everybody's dropping inventory because of everything that got built up into the system. And everybody's taking advantage of lead times coming down and assuming lead times are going to remain relatively short.
If we get this wrong and the macro is better than everybody thinks, lead times are going to bounce back up a little bit just on demand function. So we'll see. And that would be the upside to everybody's forecast at the end of the day, is everybody's being understandably, reasonably cautious about the macro. But I have absolutely no fear that we can flex up with it. Like I said before, we're we believe in really good shape in terms of total channel inventory, which is our inventory plus our customers and our distributors' inventory.
And I think it's a related question I should ask you, Rich, like, you know, maybe even a year ago we were talking about how you might be worried that pricing would start to, you know, or come down. Like, it really, would you say, just hasn't happened? And you.
Well, we were by no means the leaders of price takers, right? So if you go back and take a look and benchmark multi-industrials between price-cost over the last three years, we ultimately were positive price-cost, but more because I think we did a lot better on cost as opposed to price. So which arguably maybe we should have done better over the last couple of years, but we, and I said it before, we fully believe that the one way to protect price, if you've got this fear now of, wait a minute, there's been too much price taken and as volume comes down, what happens to price, which is a logical kind of question that's out there. Well, the one way to protect that is not to be over your skis in inventory yet, right?
So because then if you have the only way to clear inventory at that point is either cut production or cut price, neither of which is good for earnings.
Yeah, got it. I'm going to open it up to the audience in a second, but let me ask you about your commentary recently to play offense in capital deployment. You know, you mentioned that your balance sheet optionality is now more optimal. So it does seem like, you know, you're signaling a more active phase, call it, of portfolio management. Obviously, you did, you know, bought FW Murphy, subtracted DESTACO . So and you've dialed in, I think, a little bit of M&A and buybacks into your guide. So maybe give us some more color where whether where the environment is this year. And, you know, if you were to do something bigger, you know, would you try to marry, you know, buying versus selling? Like how do you think about that as you did kind of with FW?
I think that we're opportunistic either way. But with a bias towards adding at the end of the day. On the selling side, we need fair value. And like we're like everybody else, our portfolio is undervalued. But we did monetize DESTACO at a value that, let's be honest, was nobody put in their sum of parts at the end of the day. So, having said that, we'll see, right? I mean, you know, you had poor equity market performance in the latter half of 2022 and most of 2023. And then you would have thought that and you had interest rates coming up, so you would have thought that asset pricing would have been coming down and more reasonable from the salad days of free money. But it just wasn't down there long enough, quite frankly, for capitulation.
So there wasn't a lot of activity. You can ask the investment bankers and maybe hiding in this room. So, I think this is going to be a good year for M&A in total just because, there's some surety what's happening to interest rates now. And even if they move a little bit down from here, it's not going to unleash anything. And because it's a relatively lower growth environment. And so the question is, as assets come and there's corporate balance sheets are largely in very good shape, what's going to happen when quality assets come? Are we going to go back to seeing kind of multiples that we saw, you know, in 2020 and 2021, which were very high, quite frankly? Or are we going to see something reasonable? I think it's too early to tell.
Having said that, you know, we're pretty good stewards of capital, but we're interested in adding to the portfolio and mixing up. That's part and parcel to us driving towards 25% margin at the end of the day. But I would not eliminate capital return as part of that equation also. I think that to be frank, I mean, you know, our year-end dry powder, are we going to deploy $2.5 billion? Probably not, right? Unless something really unique came along. So I think that you're we're more likely to get some opportunistic inbound M&A and some opportunistic capital return during the year.
Any questions from the audience? Any questions?
I think, Andy, I should ask about thermal connectors earlier. You talked about getting specced in on the front end and then that's what you have to do. What allows you to do that? Is it just a cultural thing at Dover or what allows you to get specced in on the front end early?
Well, in the particularly business that's coming out of, that's the biopharma side of our business. And really that's how you win in biopharma, because it's highly regulated by the FDA. You need to win the spec. And if you win the spec, by and large, the market can only handle one or two players and then everybody buys from the same two players, especially if the TAM is relatively reasonable. And that's the case here, right? So we have the technical capabilities to do engineered connectors in very important spaces, whether that be in blade servers and/or biopharma. So it was just taking that technology and using it in a variety of different markets. Now, what we did was a couple of years ago is split that business in two.
So we've got a dedicated facility for the Biopharma product because it's clean rooms and everything else. And we've got a dedicated facility for kind of thermal connectors and some other specialty connectors. So, you know, it's winning the spec. So having the product that the industry accepts and then it's having the capacity to serve the industry. And I think we're in pretty good position in both parts.
Rich, maybe you'll just follow up on that. Is there any other way to for liquid cooling, you know, besides thermal connectors or is it basically, you know?
Well, I mean, there's liquid and there's other cooling.
Well, of course, but I'm just saying if you're doing liquid cooling, you need to kind of use your or your competitor's product.
You need a connector at the end of the day, right? And so, you know, I'm not the engineer of the connector business. I'm more than happy to anybody's interested. You can go to our facility in Minneapolis and take a look at it. But yeah, I mean, there's it's.
I mean, it seems like an obvious question, but at the same time, you know, you never know some substitute, whatever. But.
Yeah, look, I'm not saying it's be there first and get specced in, get volume at that point, which makes you more competitive from a cost basis and then you're off and running. Does that mean that nothing comes in and alternative comes along? Yeah, maybe. But at the end of the day, all you can do is what's in your control and that's to win the spec and have the capacity available and be able to ramp in terms of volume. Because in the total cost of what we're talking about here, we're talking about a little tiny connector, right? So there's other wood to chop, I guess, is the best way I could say it if you're building these relatively large facilities.
Got it. I always appreciate your opinion. Maybe just step back for a second. You suggested most of your growth in 2024 will come from North America. So, you know, what is driving that growth ultimately? Is it sort of onshoring-led growth, you know, just pockets of growth after Destocking end? Like how would you characterize the growth?
Well, I mean, overall we're levered towards North America just by the geographic split. So our revenue in China now is around 6%. So, and that's been going down every year since I've been here. Europe, I think, you know, is not out of the woods. Europe's been in more or less a recession for the last two years. Do they break out on the other side right now? I don't think that we see that yet. So, you know, we are more or less, you know, we're like everybody else. We're where GDP is rising. That means that's where the growth is right now. So it's going to be levered in North America for the most part. And then there's a variety of different drivers, whether it's just secular growth, GDP growth, or specific product lines.
We'll say, and that's part of the wait and see that everybody's doing in terms of the macro this year. Does Europe kind of turn around or do we just get another more abundant year in Europe? Right now, forecasts are saying it's just going to be more of the same. But, you know, can it turn up or down? We'll see.
Can you grow in China in 2024?
Will we grow in China in 2024? Maybe, but if it's not going to move the needle.
Yeah, small. Okay. And then maybe just a few questions on the business. DCST seems like the segment with the most pressure, I think, as you said, you know, heat exchangers, Belvac. Are you seeing any signs that heat exchanger inventory could be cleared out, you know, in the second half of 2024?
It's the heat exchanger issue is just transitory, right? It was a market that was growing robustly for the last couple of years. Everybody was chasing it at the same time for just for reasons that we can understand. It was very much levered towards Europe and it was so the hierarchy was Europe, then Asia, then North America, largely driven by heat pumps, largely driven by legislation in Europe. We are one of three global suppliers in brazed plate heat exchangers. So we maximize our revenue and our profitability. We spent a good amount of time expanding capacity because we think that the long-term growth of those product lines, forget the volatility of too much inventory and inventory coming down. We think that the core growth will be positive this year despite probably some headwinds in the first half of the year.
We feel great from an IP point of view and we feel really good about capacity and being competitive from a cost point of view. So, you know, it's a to me, I look right through it. Is it a little bit of a headwind in the first half? Big deal at the end of the day.
And then, alternatively, you suggested that you're basically sold out with waste hauling and DEP, and vehicle aftermarket was starting to see improvement in booking. So, so that'd be your best business, you think, in terms of growth?
Well, I mean, if you look at the margin expansion in Q4 from the Engineered Products, that is almost exclusively driven by ESG and the volume. You know, I don't want to rehash our conversations about availability of the actual truck, right? We're the body builder on the truck. Now trucks are readily available. So you've got pent-up demand. Our body or truck body volume is still below 2018. Just to give you how long it's been since, the supply chain on the truck side has been available. So there's been a lot of pent-up demand, from the waste hauling industry, both the publicly traded side and the municipal side. So we'd expect that to be at least a 2-3-year run in terms of volume. And you can see it in the margin performance.
Got it. I want to go back to DCST for one second on the climate side. I mean, you recorded close to 18% operating margin, you know, in what is, I think, usually seasonally slower Q4. You know, I know you mentioned positive mix regarding CO2 systems, but the Q4 results would be hard to believe, you know, if we were sitting on this stage a few years ago. So, you know, what does it mean about sort of future margin? Is this a business that now has a shot at 20% margin or?
Sure it does. Yep. Yeah. I mean, all the hand-wringing about the refrigeration business, I think that we could stop hand-wringing about it, right? We told you what we were going to do. It took us 4 years, but we recapitalized it. We took a lot of the direct labor out. We took a lot of SKUs out of that business. We sized that business appropriately in the portfolio to maximize the margin. And we've actually beaten the margin targets that we laid out back in 2020. And I don't expect that to reverse course from here. And if you layer on the growth of US CO2 systems that you can see in the slide there and you can see the CAGR, that's on there, you know, we are a co-leader for that particular product in Europe. We've brought that technology into the United States.
We retrofit a plant outside of Atlanta, Georgia, to accommodate what we believe to be the volume trajectory of the business. We've already spent the money and the capacity. We've redesigned the entire European product to accommodate a platform product for the North American market. So we think, you know, design for manufacturing rather than what is generally a bespoke product in Europe, we're going to do it on a platform basis. So we make good margins in Europe. If we get it right, we should make better margins in North America. So to the extent that that CAGR continues, which we expect it to do, then we'll mix up from here and then drive it towards '20 for sure.
You remember what people were saying to you, you know, when you came here on this business?
I remember everything, all especially the negative stuff.
Yeah, I understand. This is a business that actually, I mean, obviously it's lower than 25% margin, but it can kind of help you, like in terms of you can have a continued good improvement in margin.
Look, at the end of the day, we're driving to a portfolio of 25%, but it's a but we're very disciplined in terms of return on invested capital. You can have lower margin businesses that have a high velocity of working capital that its ROIC is superior to a higher margin business that has a low velocity of working capital. So you got to be really careful of, well, throw out the lower margin businesses and just keep the higher margin businesses because you don't it doesn't always solve for financial performance. So a business that's growing that much despite the fact that it's 25 and we start absorbing our fixed costs, that the incremental in that margin, the incremental margin of that business should go up substantially over time.
If it doesn't get to 25, but it doesn't consume a lot of working capital, we may keep it forever, quite frankly. So, yeah, we get a lot of questions about, well, you know, get rid of the bad and keep the good. It's just too simplistic, right? You got to weigh growth rate and Return on Invested Capital not be so myopically focused on margin. We get it. Everybody wants to hear about margin. So that's why we put targets out there. But it's a little bit more complicated than that.
Very helpful. Then you described Dover Imaging & Identification as a very steady business given its recurring nature. And that's what to expect for 2024. But maybe you could elaborate on that business because it's been doing very well on the margin side. Sort of, what do you see for 2024 and can margins, you know, continue to go up there?
I think that business has been the best adopter of the central systems that what I said before about bringing leverage to these operating companies. So that is a business that grows 1%-4% a year depending on the macro. It is very tied to GDP. You get a little bit of price every year. So it's good. It's a very high margin business almost that has almost been exclusively driven by total productivity, let's call it there. It's a cash engine. So it should be valued as such. And that's what we can expect from it over time, right? It's not. It sounds very easy. It's not. It's a global business. So, you know, it's got some complexity to running it at the end of the day. But the market structure is a good one, right?
There's only a couple of us in there, and we all kind of make the same amount of profit, and you compete on product and service, and we're willing to do that. So we love it as part of the portfolio.
And then on Clean Energy & Fueling, it's a segment where you're most aggressive on inventory drawdown. So does that mean it could be one of your higher growing businesses in 2024?
Well, we like the gas complex in total, right? So, you know, we can have a debate of, you know, do you chase electric or do you chase we, you know, because historically we know the market and we know the customers. So we're big believers in the total gas complex. So you see us, you know, spending a lot of R&D money on some of our traditional products, particularly in compression to accommodate the transition to gas. That's why we purchased FW Murphy at the end of the day. Now that's in Pumps & Process Solutions. On the clean energy side, we bought RegO. We bought Acme. So we like the whole cryogenic space. Those are Dover kinds of businesses. The TAMs are a reasonable size. They're concentrated and they're highly regulated and we know the customer.
That's a space that we'd like to expand in for sure.
So, just last question. I asked this question. I've asked you last year. I ask it of all companies. So, what are the top two or three innovations and structural changes affecting your company over the next five years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?
Oh, I feel like I'm at an MBA course. We'll see about AI. We're likely to be a follower there. But I think all the work that we've done on back office processing lends itself to AI. And that's something that you can almost buy off the shelf if you think about it. Because if you think about a company like American Express who's been an early adopter, talk to a human at American Express these days. It's next to impossible. So you can buy bespoke AI packages to run routine processing. So we've done the hard work of kind of consolidating all that. So that's likely the area that we are to use it.
And then when we get into particular individual products, you know, the subcomponent side of the business doesn't lend itself there because you're selling into a bigger ecosystem. And the finished products, I think that we've got some select areas where we think that we've got the scale and the market power to use it. So that's kind of like one side of the house. The other side of the house is, look, the macro's getting, not the macro, the geopolitical environment doesn't seem like it's getting any easier. I think that we were winners of the last time we went through that whole tariff issue, quite frankly. That's how that helped us quite a bit because we're generally speaking, we are make in region, source in region, sell in region.
So we didn't really get burnt too hard on tariffs and the elongated supply chains and a variety of other things. I would expect it's likely that is going to increase rather than to decrease. So we could further take advantage of that.
Well, you know, Rich, thank you very much for joining us.