Okay. Hey, everybody. Thanks for being in the room and on the webcast. Rich Tobin, Chairman and CEO of Dover, he was just telling me that this was the event that he was looking most forward to, this fireside chat. Obviously, he didn't say that to me, but nonetheless, we appreciate you, Rich, taking the time to talk about the business. My name is Amit Mehrotra. I lead the Multi-Industry Franchise here at UBS. It's such an interesting time to be talking about industrials because it's really the tale of two markets, with the AI infrastructure market improving, obviously continuing to be very strong, and then hopefully the non-AI market showing some signs of life. Certainly, with Dover, very interesting conversation because the company hasn't really grown that significantly this year, but is projecting to grow a meaningful step up in the fourth quarter.
Hopefully, Rich, you can offer some insights on whether you still believe that, what the drivers are. Why don't we just start actually talking about that and kind of what your latest and greatest thoughts are?
Yeah, sure. Actually, if you look at the slide that I just put up there, I mean, the top-line growth is not terrible by any stretch of imagination. I think we have a little bit of a fixation lately on organic growth, but as you know, we are an acquirer, so we're up five or up three year to date. I expect from an organic growth point of view that the fourth quarter to be our best quarter for the year. Despite having a variety of different market conditions during the year and the tariff tumult and everything else, we're on track to hit the guidance that we put out at the beginning of February 2025, which was a good amount of top-line growth, 4%-6%, and adjusted EPS being up in the teens.
We're tracking pretty much, if you listen to our third quarter call, we're tracking where we said we'd be. I haven't seen November close, but I haven't heard anything would make me think it's either demonstrably better or worse. I think it's pretty much on forecast. The results for the year all in, I think, are going to benchmark very well versus the multi-industrial space.
Can you talk about maybe the full year obviously is there, but then it's a tale of the first three quarters and the fourth quarter. Obviously, you had some refrigeration headwinds that order started to improve in the third quarter. Is that what's bridging kind of this inflection back to the mid-single-digit organic growth number in the fourth quarter?
Yeah. As we mentioned in the end of third quarter, it carved off about 200 basis points of the growth. If we forecast anything wrong this year, it would have been retail refrigeration demand. I think if we had read the tea leaves a little bit better, we would have figured out that the tariffs probably had a disproportionate impact on retail food because margins are thin. I think that there was a reticence to shut down any of the stores to do refurbishment. While we've been doing really well on the CO2 side, which is the big refrigeration systems on the top of the store and for warehousing, it's the in-store refurbishments kind of slid to the right. As we mentioned in Q3, I booked a bill on that business.
It inflected positively, and that's going to be a big driver of our organic growth in Q4.
We were at dinner last night, and you right up front mentioned your view on what the impact interest rate cuts would mean on sentiment and psychology of the market and how that could turn into actually tangible activity. We do not hear a lot of CEOs talking about that. Obviously, it makes sense, but there is still a debate about what the actual impact to activity would be from interest rate cuts, whether it is 25 or 50 basis points. Maybe just double-click on that and talk about how you view that market.
I mean, the next cut better be 25 in December or all hell's going to break loose. I think there's an argument for it to be higher than that for sentiment alone. I think that sentiment plays an important role. I'm not talking about the equity markets and valuation and everything else. I'm just saying from a corporate activity point of view. You went through a period where, for the most part, industrial corporates came into 25. If you looked at the forecast for growth, it was okay. It wasn't great, but it was good. Then we ran into tariff tumult and a variety of other things, and kind of sentiment really swung pretty negative, especially after you had the little dislocation in the market in February. It's taken some time for that to gain steam.
Look, at the end of the day, for us, we do not supply into so-called interest rate-sensitive end markets like housing or auto. At the end of the day, also, look, we would like to see discount rates come down. Like I said, I believe that in a market with interest rates going down, which are already baked into equity pricing, from a corporate sentiment point of view, I think we are probably going to get a little acceleration of CapEx that got deferred in 2025 and an earlier start than we saw this year.
I guess lower interest rates are also coinciding with higher multiples. For a company with $6.5 billion-$7 billion of firepower and growing, probably will grow as you generate more cash in the fourth quarter, valuations seem already pretty high to begin with. I assume this is in addition to kind of a lot of the AI back office stuff, productivity stuff that you're doing, you're spending a lot of time focusing on the pipeline from an M&A perspective. How does that kind of, how do you think about that? You're buying back more stock.
Sure. Look, if you look at the headline figures for M&A this year, everybody's making bonuses. If you dig into the numbers, the vast majority of M&A deals that have been consummated in 2025 have been very large deals, and corporate carve-outs, breakups is what's really driving the market right now. The mid-market where we play has been pretty benign. Whether it's because of a paucity of targets coming to market, valuations that we've seen, transaction multiples being quite elevated in the mid-market right now. Our bias has moved from more M&A into capital return. We just announced an ASR. We're buying back $500,000,000 of our shares. We'll see going, no deals are going to get really done between now and the end of the year. We'll see where we start out in 2026. Maybe there'll be more assets coming to market.
If there's a better amount of deal flow, we'll put some kind of CapEx, a lid in terms of multiples. We'll see if, in fact, multiples remain super elevated. We'll do as we always do, a variety of proprietary deals where we generally don't pay elevated multiples. If not, then buying back our equity further in 2026 becomes a real option.
I mean, I get a good word to describe whether you sell or buy something as patient. You've been patient. I guess a year from now, would you fully expect to kind of deploy that firepower? Is it still TBD, just given where multiples are and the pipeline?
It's TBD. I mean, we're patient, but I think we're strict in terms of valuation and getting returns. It's easy to sell things. It's easy to buy things. It's not so easy to create value over time. Coupled with the fact that multiples in multi-industry have come down quite a bit, it makes the trade-off between M&A and capital return more evenly balanced than it would have been a year ago.
That some of the parts lens in which you look at the business, it feels like your stock may be the most compelling right now as you look at it.
Proof is in the pudding. Like I said, we just bought back $500,000,000. We're not liquidity constrained. We'll close the year. Depending on the health of the M&A pipeline, I think it's likely to do a mixed solution between M&A and capital return in 2026.
Got it. That's helpful. It is December 2nd. You've been really kind of front-footed and talking about the view for 2026. I do not want to reiterate what you've said, but there is not a rising tide that's lifting all boats right now as you look at 2026. There are a lot of puts and takes. It feels like your confidence on 2026 is really coming from the headwinds that you've endured two years ago, last year, now this year, and kind of what you're seeing on the orders that gives you confidence that you might get some of that back in 2026. Maybe talk about how much of your 2026 optimism is very Dover-specific because of that dynamic or more kind of you're getting more encouraged around some of the macro dynamic.
I mean, again, if you look at the numbers that we've posted year to date, you want to underwrite that Q4 will be our best organic growth rate for the year, pushing up the averages. We're pretty close to kind of a 4%-6% top-line algorithm. It is not herculean of what we've got to deliver in 2026 versus 2025. I get it. Everybody's concerned about price take in the marketplace, but I think that if you've gone back and looked over the previous three years, we're averaging probably a point and a half, a 2% of price take across the portfolio. If everybody's concerned about, do we get into a more price-sensitive market going into 2026, I think that's manageable for us relative to the comps, our trailing comps.
The refrigeration, I mean, I understand the dynamics of tariffs and maybe pushing some of that replacement maintenance CapEx to the right as a result. It feels like with the orders, what you saw in the orders, that's kind of now in the rearview mirror. Have you seen that momentum continue? I assume a lot of that, if not all of that, is replacement. Just talk about kind of your confidence around getting a lot of that lost revenue that was really seemed like pushed to the right as opposed to lost indefinitely.
Yeah. I mean, look, the fact of the matter is we called it wrong for the year, but we don't believe it's lost. We just think that it's shifted. If you look at book-to-bill for that particular segment exiting Q3, it was positive. As I mentioned before, we'll translate that into organic revenue growth in Q4. That particular business, I would expect to have healthy organic growth in Q4 and exit Q4 with a healthy backlog.
We talk about kind of the growth, the top-line growth for next year, and then we talk about mix and your, what's that term you use, non-volume or revenue cost? Is that what you?
Yeah.
We just call that idiosyncratic cost operative.
Right. Okay.
Right? Okay. So that's $40 million for next year. Refrigeration growing, it's dilutive to margins, but maybe not as much given the good work that you guys have done on improving that margins of those businesses, of that business. The growth platforms are obviously mostly accretive to margins. You have the $40 million on top of that. Obviously, it sounds like the setup for margins is pretty good.
Yeah. Look, I mean, if you go and look at our conversion over the last five or six quarters, it's north of 35% on incremental revenue. We used to have a band of 25%-35%. It's probably stale now. We're pretty much locked in at the top end of that range. What you need to underwrite to get to teens increase in EPS, if you take the middle between 4%-6% top-line growth, that incremental margin is at 35% and factor in the share buyback, it's, I'm not saying it's easy or it's in the bank, but I think you can craft an argument that says it's doable for sure.
Top quartile type EPS growth is the point you're making.
We always do top quartile EPS growth.
Can we talk about the 20% of your portfolio that's kind of these growth platforms? Every time you mention the word turbine or AI, your stocks go up. Let's focus those conversations on those words. I think you made an interesting point yesterday talking about the sell-in to the power generation market and how there's a lag between kind of the orders of turbines and then ultimately the power hookup that comes with that and why you're getting more optimistic that maybe that's a second half 2026 growth driver for you guys. Maybe talk about that.
Yeah. I mean, sure. We are component suppliers into gas and steam turbines, the large ones. Everybody's got the press and they're sold out for years on end and everything else. That's great business. It's not a lot of volume. It's high ticket price, but not a lot of volume because if you go look at the amount of large steam turbines sold every year, it's not herculean in terms of the amount. The dollar value is a lot, but the amount of units is relatively small. We'll take that business. It's great. We've got good relationships with that part of the market. We're actually larger in the midstream and downstream portion. Smaller turbines and the gas engines or the diesel engines that sit aside those, we've got a material position there. We've also got a material position in gas distribution.
The pumping stations and reciprocating compressors that follow on there. What we've seen is very good demand on the large turbines, so very much upstream, but a lagging effect in terms of the gas distribution to serve those turbines. At a certain point, you can install a turbine, but you need to have gas delivery to it. We're pretty hopeful in the back half of 2026, we'll see a considerable amount of CapEx on that general infrastructure to deliver those gas to those positions.
One thing that we do not associate with growth verticals, but it is like retail refueling, which you have talked about as kind of entering this multi-year kind of CapEx inflection. Talk about what is driving that and what it means for the company. There is some legislation about underground tanks that ultimately can help as well.
Yeah. I mean, I think most importantly, between 2021 and 2024, any business with ICE exposure was almost considered uninvestable because EVs were taking over the world. And valuations, anything around ICE really suffered during that period. Well, I guess thoughts have changed a little bit in terms of that transition away from ICE, number one. Number two, because of that, there was not a lot of CapEx that went into that particular sector because even our customers were reticent in terms of building out the infrastructure with the exceptional few. So what you've seen since then is now everybody's brought down their view in terms of EV adoption over time, number one. Number two, you've seen some very successful deployment of retail fueling infrastructure. Costco comes to mind and how that drives traffic.
If you look at the market itself, you've kind of got a bifurcation where largely driven by private equity. You've got a lot of service types of businesses, like the Pep Boys of the world, consolidating tire changing and a variety of those services. You've got the Speedways and the Wawas and the Costcos figuring out that having retail fueling along with food delivery is actually very profitable. The loser in the middle is the mom-and-pop gas station. It's driving this kind of build-out of the infrastructure. It's really got a three- four-year kind of built-up demand of it because no one was doing anything for a period of time. There is a legislative aspect to it because on the underground tank side and being the 20-year vintage where you lose insurance, and that'll drive some of it.
I think that there's a business model now that's recognized by market participants that having fuel delivery coupled with a retail operation is a very profitable business. You'd see CapEx in that space inflecting meaningfully.
Is there anything that we talk about mix from a margin perspective, but I wonder if there's also a consideration from a cash flow perspective if refrigeration grows, the cash flow dynamics of that business are pretty good. Just talk about kind of how cash flow is impacted by maybe some of the mix as well.
I think on the growth platforms, we were long inventory probably over the last 18 months. A, we want to have the availability of the product because that's a way to gain market share. In some particular businesses, we've been working a lot on our footprint. When you're consolidating fixed-cost infrastructure, you actually have to build up a lot of inventory to accommodate that transition. We've done a lot of that on the clean energy side, and we've done a lot of that on retail refrigeration. We just announced that we're closing a pretty large plant in California and repurposing it back into Virginia. There's been a lot of working capital associated with that transition, which is part and parcel to the $40 million of the carry-forward and restructuring.
I think we've got room to grow on cash flow, but from a working capital efficiency point of view, but really the fundamental driver, our cash flow metrics are improved year- over- year. The biggest driver of that has been margin mix as opposed to working capital.
Got it.
We grind it out on the working capital. It's margin that really drives it.
Before I move into the margin, I want to talk about FW Murphy Production Controls for a second. I mean, you bought that business, I think, for over $500,000,000. I think the latest disclosure was it was up 30% year- over- year. They obviously do electric infrastructure investment exposed to that market. That's been seemingly a very good acquisition and significantly above your underwriting plan, as you said. Can you just talk about what's happening under the hood there?
Look, we do those all day long. It was internally resourced, so we did not have to go into a competitive auction there. It is a little bit of an adjacency. We do not do a lot of test and measurement. We do some, but that was sitting right next to our polymer processing business. We have got a fantastic management team. We paid 15 times EBITDA for it, but at that kind of growth rate and that kind of margin, we would argue that that is kind of a fair multiple. That is kind of the sweet spot for us. I mean, the medium-sized deals that we source ourselves that are adjacencies where the end markets know our brand equity. The integration risk is relatively low. Hopefully we can do those all day long.
Do you have some of those in the pipeline that you think internally sourced that makes sense from a multiple perspective?
A few. Yeah. Yeah. The funnel, I would say right now is okay. Look, you can talk about funnels and say that they're huge because I can gather up everything that's private. The real tangible, actionable funnel of assets that are in play, so to speak, whether they're coming to auction, somebody's bringing it to market, or whether we're self-sourced is decent right now. Again, it is at the end of the year also. It tends to dry up at the end of the year and then it restarts at the beginning of 2026. We have some irons in the fire. We'll see if we can close them.
You've made some well-timed divestitures, obviously, as well. Is that now completely in the rearview mirror? You're happy with where you are and it's really about adding to the portfolio? Is that the right way to think about it?
Look, it's easy to sell anything in the portfolio. When you're a multi-industrial, invariably you get the questions, "Why don't you sell that or why don't you sell that?" Monetizing things is relatively simplistic, but we take into account tax leakage when we sell something, number one. The ones that we sold actually were very good performing businesses within the portfolio, particularly our ESG business. I think we had doubled the profitability over the previous three years, but we were looking at its strategic position at the time. We sold Destaco, which was margin accretive to their portfolio, but it had a lot of exposure to auto OEM. We just said to ourselves, "That's probably not, it wasn't a value. It wasn't like the margin was a problem or some parts it was a problem for us.
It was more just kind of the end market exposure. I think on ESG, it was more capital goodsy in our portfolio at the end of the day. I think that we had extracted as much as we could out of it. We found a rational buyer. Are there other pieces of the portfolio that fall in the category? I guess it's maybe, but there's nothing of any consequence that we have in the portfolio that is kind of negative ROIC at this point. We're not forced sellers. I'm more than happy as long as it's not strategically impaired. If it's mildly dilutive, but the ROIC is high, I mean, we'll keep them forever.
The part of the portfolio that is growing, obviously like thermal connectors and the heat exchangers that go into the cooling distribution units and all that good stuff, obviously that is going to grow for the next three- five years, but it is a relatively small, it was $100 million this year, something like that. What is the growth rate associated with that business? Is it accelerating? I mean, these are obviously, they have already come from very small numbers to decent numbers now, but what are you seeing in terms of the growth % rates?
Yeah, it's a tough one. We like our position into data centers because, again, it's critical components that we're not doing built-up units. There's a lot of capacity coming into the market. I think you've got to be relatively careful about profit extraction.
The capacity coming into the market where exactly?
It's just a.
Just every data center?
When you've got that kind of capital going into a market, it's going to attract a significant amount of activity in terms of entry into the market. Now, who's successful and who's not is, I think it's early days right now. How long the capital cycle lasts is, I think it's too early to really tell. I mean, we just went through a period of everybody announcing EV battery construction, and that kind of petered out relatively quickly. I think this is a little bit different.
Data centers are different than you.
Yeah, to us, the data centers, we like our position on the critical components. We like the energy input portion. That's where we're larger. I think in terms of total returns, we'll probably get it at the end of the day from the energy side, more from the internal components of data centers.
What I think is interesting too is when I think about what you sell into that market, I don't associate it with long lead times. Before you here on the stage or another room, there was a CEO of Eaton where over a third of their revenue is sitting in backlog in their Americas business. Long lead times. Vernova sold out till end of 2028. It feels like the focus right now, and I think you mentioned this last quarter, is get us on the reference platforms and then maybe all that growth can come when these things are ready for showtime.
Yeah. I mean, look, I think we are early in terms of capacity expansion on both the thermal connector side and on the brazed plate heat exchanger side. I think we're done on the thermal connectors for the most part. I think we have adequate capacity for the next couple of years at least. On the brazed plate heat exchanger, I think that we're done with the last capacity expansion at mid-year of this year, and then we'll regroup and see where we are. I think the part of our success has been that we had front-run that capacity expansion. Our lead times in both those businesses are best in class.
Which means that the growth maybe isn't too common.
If the demand is there, we're not going to be capacity constrained to follow the growth of the market.
Got it. Okay. Great. I want to move to margins because this has been an incredible stand-in. I mean, there's some businesses that have been down and profits have been flat to up in dollar terms, which is hard to do. But you've done a lot of good job sort of centralizing a lot of the functions of all the different operating companies. You put in this new slide last quarter with a lot of circles in it talking about AI and what you're doing. We are searching for downstream AI usage. You're smiling, Rich. I don't know why.
Okay. Go ahead.
Okay. I'm just trying to build a case. We always focus on upstream AI in terms of the factory of AI, but we're not focusing enough on companies and how they're utilizing it. Are you a believer in it, or do you feel like it's still difficult to get all the data in one place and then leverage it? What's your opinion?
Yeah. I mean, I smile because it's always the next thing. God forbid you didn't put something in your disclosures about AI, then you're not keeping up with the cheerleading section. Look, we look at it as a productivity tool at the end of the day. We've done a lot of work over the last five years of centralizing all of our IT infrastructure, which has been a contributor to the margin expansion, quite frankly. The good news for us is we've got processing centers that do a lot of kind of keystroke portions of our business: AP, AR, general ledger, expense reports, which all lend themselves to automation over time. The low-hanging fruit for us before we get into the product end of it is pure productivity.
That's where we're working really hard in terms of AI tools is to extract those kinds of savings out of it. I think it's early days on the product side and who monetizes what from AI applications on the product side.
I think what the work you've done is I think you're a little, it seems like you're a little bit ahead of it in terms of focusing a lot of the last few years and getting the data inside of one silo that you can then apply your agent to, whereas that's not necessarily the case for a lot of companies. Talk about that technical or practical hurdle because for us looking outside in, we don't maybe appreciate that.
It is a ton of work. In the early days, it's detrimental to profit margins. You're investing in advance of getting the benefit from the leverage scale of doing that. We went through that process between 2018 and 2022. Since 2023, 2024, 2025, we've seen average transaction costs come down because we've basically got to full cost absorption on what we've done. The amount, I mean, you think about the complexity of the portfolio and the size of our individual businesses, and we've been an acquirer. The amount of work that our IT people have done to consolidate that infrastructure to allow that all to be processed in one node is, A, it's thankless work. B, no one cares about it externally.
Ultimately, if you do that work, it is a real money saver, and it's a way that we extract synergy value across the portfolio of the businesses. We have built all that between the data processing side and from the engineering side. When we do acquisitions, we're not making up the numbers about what the synergies are, and we're not telling you that we're going to get revenue synergies and cross-selling and blah, blah, blah. We have a playbook that we can go in there and sweep all of those non-customer-facing costs into these processing centers. What we get out of AI over time, I mean, it's $80 million of running cost right now. Cut it in 1/2, it's not immaterial.
That's additive to kind of the ongoing work that you do yearly.
That's not even in the number.
Right. Right. Okay. I wanted to just, are there any questions in the audience? Just raise your hand. We'll get a mic over. One of the things that is sort of interesting to me is when I look at all the companies within multi-industry, we cover 30, 35 of them, and we put a scatter plot between return on invested capital and valuation. There's one company that sticks out like a sore thumb. I would, everybody in this room and then on the webcast, just do that if you can, and it's Dover. That's an opportunity as well as a point of frustration, I'm sure. As somebody that constantly thinks about some of the parts and valuation and comps, how do you deal with it besides getting upset and annoyed at the market for not appreciating the ROIC?
What do you need to do to kind of crystallize that or narrow that disconnect?
Deliver the results at the end of the day.
You've been doing that.
Okay. The bottom line is if you go and look at multi-industrials, the sector has underperformed for 2.5 years or so. There's been a lot of capital that's flowed to thematics and pure plays, and that happens over time. You can get frustrated. You can take big swings on the portfolio in or out, or you can stick to your guns and just deliver year-over-year results and have a credible story of how you deliver them and that the markets turn over time between different thematics and value creation over time. We discuss that issue with the board of directors all the time. I mean, you can't panic and start running scenarios of doing crazy stuff to change the narrative because you can go look at that's been tried before, and it's a better-than-average bet. It's a failure.
Give you a little bit of a sight into, "Hey, we bought it for X multiple. It's growing significantly faster than we thought"? Does it make you want to, does it make you open to maybe going out a little bit, buying something a little bit more expensive that gives you a little bit more of that growth vertical beyond the 20% of the portfolio?
We don't look at the Dover multiple and say, "Well, we can't pay more than our multiple." Right? And we've got, look, there are certain parts of our portfolio that should, on a standalone basis, should command a very high multiple because of market structure, margin, and growth rate. So you've got to earn your way to pay. So there are certain markets that you're going to pay up. And there are certain markets that you're not. Look, we're pragmatic about it. I mean, we'll pay up if we have absolute believability of the end market and our ability to extract those profits. We'll do turnarounds also. So I'm not, we're now at the point in 2018, we probably didn't have the right to do it, right, because this was much more of a, we were severely underperforming from a margin point of view. That's not the case anymore.
Would we go and do a dilutive deal if we thought we can turn that business around and do what we've done with the portfolio here? Sure. Absolutely.
Maybe as a final question, opine about 2026. I know you have this really convincing line, and I think you know what I'm going to say. Talking about how, "Wow, first time in two years, no business is going to be cyclically challenged or something like that." I assume that's still the case. Sitting here today on December 2nd, how would you characterize the outlook for 2026?
We like the setup, right? We're going to like the exit. I compare exit 2024- exit 2025. We were accelerating somewhat into 2025. I think the acceleration this year into 2026 in relative terms is better from a setup point of view. We had a couple of businesses that were not, from a cycle point of view, not done cycling down that we had to overcome in 2025. We do not have that in 2026. Putting the macro aside for a moment, like I said, if by the time we finish the year and you look at the all-in and you look at the organic growth, if we come out at 4%-6% at 35% incrementals at a reduced share count, it solves for pretty easy. There is a ton of work behind it, right?
We know we'll get another February again like we got last February. In terms of a positioning point of view, we feel great about that. From a balance sheet point of view, we're severely under-levered. In terms of what we can do from capital deployment, either from a capital return or from an M&O, we've got significant optionality.
Just as a last point on that, on the share count point, you generate the most cash in the fourth quarter. We're not even going to be able to see it on the cash flow statement, the money you spent, because you're going to replenish it. Does that give you another, and the firepower is still multi, multi-billion dollars. Does that give you another opportunity to do another? You don't want to decapitalize the company at the same time, but does that give you another round of accelerated share repurchase early next year? Is that the way to think about it?
That's what I've said before, right? I mean, I think that our bias at the going into 2025, everybody goes in being very hopeful would have been there would be a lot of assets for sale and we'd be a big contributor into that space. It never really happened at the mid-market. So we ended up building on a significant cash pile. We didn't like where the stock was trading in the back 1/2 of the year, so we intervened on the stock price. We're done between now and the end of the year now. We'll see. We'll give out pretty healthy guidance likely for 2026. We'll see where we are there, whether it's an ASR or whether we just intervene over time. As I mentioned before, rather than being 75 M&A, 25 capital return based on prevailing multiples in the marketplace, at least we enter into 2026 50/50.
We'll see what happens.
Great. I wish you the best of luck. I hope you guys get credit for all the good work you're doing. Thanks, Rich.
Great. Thanks.
Take care.