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Executives

Paul Goldberg – Treasurer and Director, Investor Relations

Bob Livingston – President and CEO

Brad Cerepak – Senior Vice President and CFO

Analysts

Julian Mitchell – Credit Suisse

John Inch – Bank of America

Terry Darling – Goldman Sachs

Jeff Sprague – Vertical Research

Shannon O’Callaghan – Nomura Securities

Robert McCarthy – Robert W. Baird

Steve Tusa – JP Morgan

Scott Davis – Barclays Capital

Nigel Coe – Morgan Stanley

Dover Corp. (DOV) Q4 2011 Earnings Call January 25, 2012 10:00 AM ET

Operator

Good morning. And welcome to the Fourth Quarter 2011 Dover Corporation Earnings Conference Call. With us today are Bob Livingston, President and Chief Executive Officer of Dover Corporation; Brad Cerepak, Senior Vice President and CFO of Dover Corporation; and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation. After the speakers opening remarks there will be a question-and-answer period. (Operator Instructions)

As a 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. Paul Goldberg. Mr. Goldberg, please go ahead.

Paul Goldberg

Thank you, Jackie. Good morning and welcome to Dover’s fourth quarter earnings call. As Jackie said, with me today are Bob Livingston, our President and Chief Executive Officer; and Brad Cerepak, our CFO. Today’s call will begin with some comments from Bob and Brad on Dover’s fourth quarter and full year operating and financial performance, and follow with our outlook for 2012. We will then open up the call for questions. As a courtesy, we kindly ask that you limit yourself to one question with a follow-up.

Please note that our current earnings release, investor supplement and associated presentation can be found on our website, www.dovercorporation.com. This call will be available for playback through February 8th, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 1800-585-8367. When accessing the playback, you’ll need to supply the following access code, 42636854.

Before we get started, I’d like to remind everyone that our comments today, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties.

We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statement.

Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website, where considerably more information can be found.

And with that, I’d like to turn the call over to Bob.

Bob Livingston

Thanks, Paul. Good morning, everyone. And thank you for joining us for this morning’s conference call. Our solid fourth quarter capped off a record year in revenue and earnings, as we posted quarterly revenue growth 15%, including organic growth of 6%. This growth enabled us to deliver fourth quarter adjusted EPS of $1.07, a 19% improvement over the prior year.

In our Energy segment, we continue to see strength across all end markets especially production-related activity. Market dynamics, including the shift from gas to oil drilling remained very solid for us and we anticipate this strength continuing well into 2012.

Within our Engineered Systems segment, our refrigeration and food equipment businesses continued to execute extremely well, driven by market leading technology and customer focus. We were pleasantly surprised with the strength of fourth quarter bookings in refrigeration and begin 2012 well-positioned to deliver another outstanding year.

Fluids and our other industrial businesses also performed very well. The fluids performance was driven by significant investment we’ve made throughout the year and product development and growth in emerging markets.

At our Communication Technologies segment we saw extremely strong MEMS microphone activity, as well as solid life science and commercial aerospace markets. We expect the handset market to show high single-digit growth in 2012 with smartphone growth rate much higher.

Within our Printing & Identification segment, I’m encouraged by the actions taken by our Markem-Imaje team to deliver new products and expand our global sales and marketing activities. Our customers have responded very favorably to our new printers which are for broader market and application coverage than the prior generation. These investments in product and resources will drive even better growth in the coming year.

These strong performances helped offset continued fourth quarter headwinds in alternative energy and semi-con markets and weakness in telecom infrastructure markets. Despite these headwinds and general economic softness in Europe, we finished the year with the book-to-bill of 1, illustrating the depth and the resilience of our business mix. I feel we are well-positioned as we enter 2012.

For the full year of 2011, we achieved record revenue of $8 billion, up 20%, including organic growth of 11% and acquisition growth of 7%. Segment earnings were also a record, up 18%. Full year margin were 17%, a very strong result considering we absorbed over $30 million in deal cost and a significant increase in acquisition amortization. In addition to revenue and earnings, we set full year record for EPS and free cash flow. We also increase our dividend for the 56-consecutive-year.

During the year we took several important steps to better position Dover for the long-term. We realigned our businesses into a new segment structure to more closely match our five key growth markets. We also divested three businesses which did not fit our long-term strategy. We received over $0.5 billion in proceeds for these businesses and believe we have positively impacted our long-term profile.

In 2011, we spent $1.4 billion in acquiring nine businesses, all in our growth spaces. Most notably Harbison-Fischer and Sound Solutions, Harbison-Fischer was a great addition to our Energy segment and delivered a strong year. Our Sound Solutions acquisition was also an exciting deal for us as it expands our products and technology in the handset market.

As you know we acquired the business just as it started to ramp new automation and products. The production ramp has been more challenging then originally anticipated impacting us in the short-term. That being said, my enthusiasm around the combination of Knowles Sound Solutions is stronger than ever. Our pipeline remains active and we expect to announce additional deals in the next three to four months.

In summary, I’m pleased, actually proud of our 2011 achievements and results, and believe we are well-positioned as we enter 2012.

With that, let me turn it over to Brad.

Brad Cerepak

Thanks Bob. Good morning, everyone. Let’s start on slide three of the presentation deck. Today, we reported fourth quarter revenue of $2 billion, an increase of 15%. Earnings per share also increased 15% to $1.12. After adjusting for tax benefits in the quarter, EPS was $1.07, a 19% improvement over the prior year.

Segment margin for the quarter was 16.5%, down 50 basis points, solid performances in Energy, Communication Technologies and Engineered Systems were offset by the expected lower volume in Printing & Identification, solar and semi markets, as well as significant acquisition-related costs.

Bookings increased 14% over last year to $2 billion, reflecting double-digit growth in Energy, Communication Technologies and Engineered Systems. In Printing & Identification booking were stable in our fast moving consumer goods markets. While the alternative energy in semi-con markets continue at low levels.

Overall, book-to-bill finished at 1, which is in line with our seasonal pattern and historical fourth quarter trends. Backlog grew 15% to $1.4 billion. In the fourth quarter, we generated free cash flow of $276 million or 14% of revenue. For the full year we generated $786 million of free cash representing 10% of revenue.

Now turning to slide four. Fourth quarter revenue growth of 15% was comprised of 6% organic growth and 9% from acquisitions. Organic revenue growth remained strong at Energy, achieving 25% growth in the quarter.

Engineered Systems and Communication Technologies also saw solid growth, 8% and 6% respectively, driven by the handset, refrigeration, fluid and industrial end markets. Printing & Identification was down 13%, largely driven by weakness in solar and semi. These results were partially offset by fast moving consumer goods markets.

For the quarter, majority of our acquisition growth was at Communication Technologies and Energy, where acquisitions contributed 35% and 16%, respectively.

Turning to slide five in our sequential results. As expected, revenue declined from the third quarter. Strong energy results were offset by normal seasonality in other segments and weakness in some end markets.

Engineered Systems normal seasonal pattern was evident as revenue declined 11% sequentially, primarily driven by the refrigeration markets. Printing & Identification and Communication Technologies were down 8% and 2%, respectively, due to normal seasonality and weak alternative energy and telecom end markets.

Bookings also declined from the third quarter of 2011, largely reflecting normal seasonal patterns. Of note, we saw strong bookings in refrigeration and food equipment, and solid energy order rates.

Now on slide six. Communication Technologies posted revenue of $396 million and $71 million of earnings, an increase of 41% and 40%, respectively. These results were driven by strong MEMS in aerospace OEM and aftermarket activity.

Sound Solutions volume accounted for 35 points of the revenue growth. Operating margin was 17.9%, a decrease of 20 basis points from the prior year. Benefits from volume increases were offset by product mix in the handset market and production ramp challenges, as well as softness in telecom and the impact of acquisition-related costs.

Bookings were $350 million, an increase of 21%. This growth was largely driven by our very strong MEMS handset markets. We also saw robust order rate in aerospace. Book-to-bill was 0.88 reflecting normal seasonality and the timing of orders based on new product introductions from handset OEMs. The handset market will continue to be strong in 2012, as cell phone grow, smartphones in particular, will be positively impacted by new product releases.

Turning to slide seven, Engineered produced another -- Energy produced another excellent quarter, as North American rig count modestly grew and oil prices were favorable. During the year and continuing right through the fourth quarter, we saw a shift from gas to liquid and oil rigs. Oil rigs are now approximately 70% of the market, a dynamic that is positive for our energy businesses.

Revenue increased 41% to $510 million, while earnings increased 40% to $122 million. Acquisitions accounted for 16% --16 points of the growth. In the quarter, we saw a growth across all end markets, drilling, production and downstream.

Operating margin was 23.9%, 30 basis points lower than last year. Our margins remained extremely strong even after the impact associated with 2011 acquisitions. Bookings were $520 million, a 42% increase over the prior year, which included 29% organic growth. Book-to-bill was 1.02. We expect the energy market to remain strong as we start 2012, driven by the shift from gas to oil and continued growth in North American rig count.

Moving to slide eight. At Engineered Systems, sales were $731 million, an increase of 8% year-over-year. Fluid Solutions grew 13% to $163 million, while Refrigeration & Industrial grew 7% to $569 million. Segment earnings increased 17% to $93 million. These excellent results were broad-based with strong performances in both platforms and across most end markets.

Operating margin was 12.7%, an increase of 100 basis points, reflecting strong leverage across the segment. Bookings were $783 million, an increase of 11% over the prior year resulting in a book-to-bill of 1.07.

Our Fluid Solutions platform bookings increased 10% to $159 million while Refrigeration & Industrial was up 11% to $626 million. Book-to-bill for Fluid Solutions and Refrigeration & Industrial were 0.98 and 0.1, respectively -- 1.1, sorry, respectively.

The strong growth in bookings at Fluid Solutions was broad-based, while Refrigeration & Industrial was led by very solid refrigeration and food equipment orders. We begin 2012 with a healthy backlog in this segment.

Now let’s turn slide nine. Printing & Identification revenue was $368 million, a decrease of 13% from the prior year. Earnings decreased 43% to $45 million. The declines reflect the continued weakness in alternative energy in semi-con markets as compared against a very strong prior year.

These markets accounted for $50 million of revenue in the quarter, down 50% from the prior year primarily driven by solar. That aside, activity in the fast moving consumer goods markets overcame a softening Europe and continue to expand on the strength of new product introductions. Operating margin declined 640 basis points to 12.1%, reflecting significantly lower volume.

Bookings were $354 million, a decrease of 11% from last year. These results were driven by weak semi-con and alternative energy markets, which we believe have stabilized. With regard to our fast moving consumer goods exposure, we expect solid market conditions in 2012. Book-to-bill ended at 0.96.

Going to slide 10. Fourth quarter net interest expense and corporate expense were both in line with our expectations. With respect to taxes, our fourth quarter rate was 22.3%. The rate was favorably impacted by $0.05 tax benefit. Adjusting for this benefit, the rate would have been 25.5%. For the full year after adjusting for $0.22 of tax benefit, our normalized rate was 26.5%. Our tax rate continued lower due to the impact of geographic mix of earnings.

Now turning to slide 11 in our 2012 revenue guidance. We expect 2012 full year revenue growth of 7% to 10%, consistent with expectation shared at Dover there. Organic growth is estimated to be 4% to 7%, with acquisitions adding around 3%.

Breaking down revenue growth by segment, we expect Communication Technologies will grow organically 11% to 13%, driven by strong prospects from MEMS microphones. Acquisition growth will add 10% to 12%.

Energy should grow in the range 10% to 12% comprised of 8% to 10% organic growth and 2% from acquisitions. Engineered Systems is forecasted to grow organically 3% to 5%. We also expect 1% from acquisitions for total growth of 4% to 6%. Lastly, Printing & Identification revenue is forecasted to be flat.

Moving on to slide 12, which shows our full year guidance. We expect corporate expense to be around $145 million, up about $7 million from 2011, representing continued investment in incremental pension costs. Interest expense will be about $118 million. We are forecasting our full year tax rate to be in the range of 26.5% to 27%.

CapEx should be approximately 3% of full year revenue, as we continue to invest in capacity expansion and automation, and emerging economy growth. We again anticipate generating significant free cash flow, roughly 10% of revenue. Based on the above, we anticipate full year earnings per share from continuing operations to be in the range of $4.70 to $5.

Now let’s go to full year earnings bridge on slide 13. 2011 EPS was $4.26 after adjusting for $0.22 of tax benefit. Volume, mix and price will contribute roughly $0.26 to $0.52 for the year, while net productivity is expected to generate $0.21 to $0.31.

We now expect completed acquisitions to deliver roughly $0.18 to $0.22. We will continue to make investment in sales and engineering for growth. The combined impact of these investments and higher compensation costs should be $0.20 to $0.30.

Lastly, interest expense, a slightly lower share count and our normalized tax rate all largely offset each other -- in a $0.01 impact. The net result is earnings per share growth of 14% over our adjusted 2011 EPS at the midpoint.

With that, I’ll turn the call back over to Bob for some final comments.

Bob Livingston

Thanks Brad. We had an outstanding 2011 and we expect to grow revenue and earnings nicely in 2012. As we start the year, we believe energy will continue to perform at a high level as will fluids, refrigeration and food equipment and most of our other industrial markets. We also expect the handset market to be very strong, which should help drive significant demand for our MEMS microphones and acoustic products.

I firmly believe we had the right organization and team in place and are serving the right markets. Our focus on customers, technology and higher growth applications in economies should enable us to deliver another fine year to our shareholders.

In closing, I’d like to personally thank our employees, customers and suppliers for their strong contributions and support in making 2011 a great success for Dover. I look forward to their continued contributions in the coming year.

Okay. Paul, let’s take some questions.

Paul Goldberg

Thanks Bob. At this point, I’d just like to remind everybody that if you can limit to one question with a follow-up, we’ll be able -- we’ll be better able to answer everybody’s question. So, with that, Jackie, let’s have the first question.

Question-and-Answer Session

Operator

Your first question comes from the line of Julian Mitchell with Credit Suisse.

Julian Mitchell – Credit Suisse

Thanks a lot. Hi. Yeah. I guess…

Bob Livingston

Morning. Morning.

Julian Mitchell – Credit Suisse

Morning. The first point, you said you spent $1.4 billion on M&A last year, obviously at the very beginning of this year. I mean what are your thoughts on the pace at which you want to ramp up M&A given it’s been kind of six months waiver and you really sold businesses and not bought any?

Bob Livingston

Well, I’m not sure we feel like we’re ramping M&A. M&A is actually quite active right now, but it was in the second half of the year following the Sound Solutions acquisition as well. We just didn’t close too many deals in the second half. As I commented in my opening comments, I would expect to announce three to four acquisitions or some acquisitions in the next three to four months, but it is currently active.

Brad Cerepak

We did close three small deals in the fourth quarter into the early part of January. But they were relatively small.

Julian Mitchell – Credit Suisse

Got it. Thanks. And then secondly on the Energy business, you talked about 8% to 10% organic growth in 2012. There’s obviously a lot of noise in the last two weeks around the weakened outlook for gas related CapEx given prices. What sort of assumption you’re factoring in for your business which is towards gas rather oil this year?

Bob Livingston

Okay. Well, let’s, on key assumptions, I guess, you’d start with rig count. And 2012, our assumptions and forecast do assume a very modest single-digit increase in rig count over the year-end number and Julian, I think our modeling is 3% or 4% increase in rig count in 2012 over the year end number, but it is interesting when you look at that number for 2012 against the average for 2011, it’s about a 10% increase year-over-year comps on rig count deployment.

We do -- we have been seeing this for -- goodness for the past year. The switch from less gas to more oil on the rig deployment, the announcements in the last couple of weeks that you refer to, I think would encourage that shift even more and I have to tell you that sort of plays to our favor.

Julian Mitchell – Credit Suisse

Okay. Thanks. And then lastly, you had pretty big decremental margins, I guess, in Printing & ID in Q4. How you’re thinking about the cost base there and I guess if bookings has stabilizing in semiconductors and alternative energy, does that mean you’re kind of hanging in there with the fixed cost based on the assumption that you could get quite a big revenue ramp this year?

Bob Livingston

Well, the bookings have stabilized and to give you a little bit more color on that, I would tell you that for not just for sending in solar, but for all of the electronics activity in that segment. Our 2012 assumption is that we’re going to have revenue that’s about equal to the second half of 2011 annualized.

Julian Mitchell – Credit Suisse

Okay.

Bob Livingston

So even -- but even with the stabilization that we’re saying in the market activity, we have been taking some fixed cost out of this business during the second half of 2011 and we have more actions plans in the first half of 2012 as well.

Julian Mitchell – Credit Suisse

Great. Thanks a lot.

Operator

Your next question comes from the line of John Inch with Bank of America.

John Inch – Bank of America

Good morning, everyone.

Bob Livingston

Good morning, John.

Brad Cerepak

Good morning, John.

John Inch – Bank of America

Good morning. Brad or Bob, is there a way, perhaps, we could flesh out a little bit more, quantify some of the production ramp cost spending that I’m assuming Sound Solutions incurred in the quarter. And how do you expect that sort of to progress because obviously you’ve got some new business ramp that’s expected to come in, maybe a little bit of help on that dynamic?

Brad Cerepak

Well, I would start first by saying the challenges around the production ramp have more to deal to do with yield than with customers or market. And the yield on some of the new designs, as we transition to some new customers had been a bit more challenging than we would have liked.

We do expect those yield challenges to continue through the first quarter well into the second quarter until we get our full automation up and convert from labor to automation. And we expect the Sound Solutions business to expand margins and earnings sequentially through the year.

John Inch – Bank of America

Bob, is this an issue going on in China because I know that business had been hiring a bunch of folks in China or is just has to do with just kind of overall since you’ve owned the business trying to having tap into some other aspects of integration, I mean?

Bob Livingston

No. I would not label this at all as having anything to do with integration. It is all production ramp in China.

John Inch – Bank of America

And then my follow-up, really I guess the historical Markem-Imaje business. That business does have quite a bit of exposure to Europe. Yeah, I think the core result’s pretty good. I mean, what do you think is going on there maybe a little bit of color and do you expect the business to kind of fade given leading indicators in Europe or do you think this new product launches are superseding that impact? What do you think?

Bob Livingston

A lot of it all. We -- number one, we do have a strong business base in Europe. John, our business in Europe, you could actually split it into two pieces. We did see some softness in Europe end of fourth quarter. It was without any exceptions. It was restricted to Southern Europe.

John Inch – Bank of America

Yeah.

Bob Livingston

And in Northern Europe, Central Europe, business activity continued to be fairly strong. If -- to give you a little bit of color for 2012, we’re sitting here with our guidance assuming 10% to 11% organic growth at Markem-Imaje for 2012. We’re not expecting much growth in Europe for Markem-Imaje next year.

John Inch – Bank of America

And most of them assuming as new products?

Bob Livingston

New products and all regions of the world except Europe.

John Inch – Bank of America

Lastly, Bob, strategically, the divesture of Heil makes a lot of sense. I guess the question is, do you foresee Dover doing further divestitures, you’re talking about acquisitions but how do you think about the portfolio now given the moving parts and I realized you talked about semi-con at Dover Day, so maybe exclude those businesses what about the rest of, say, your mix, how are you thinking about that?

Bob Livingston

John, it would be quite direct about it. We have no current plans for divestiture activity that we’re currently working on, but I will repeat what I said at Dover Day and I’ve said this before. I think you’ll see us continue to sort of tweak the portfolio this year, next year, the year after when we believe timing is right and there’s a different, better owner for a business than Dover.

John Inch – Bank of America

Thank you.

Bob Livingston

But I wouldn’t expect anything major like we did in 2011.

John Inch – Bank of America

Yeah. That’s seems clear. Thanks very much.

Bob Livingston

Okay.

John Inch – Bank of America

I appreciate it.

Operator

You’re next question comes from the line of Terry Darling with Goldman Sachs.

Terry Darling – Goldman Sachs

Thanks. Good morning.

Bob Livingston

Good morning, Terry.

Brad Cerepak

Good morning, Terry.

Terry Darling – Goldman Sachs

Hey, Bob. I wonder if we just make sure we get the complete list of kind of what changed in your thinking about the 2012 Mosaic versus Dover Day. It looks like the Communication Technologies organic has gone up a bit, the acquisition growth down a bit. You talked about the ramp issues on Sound Solutions, presumably the Comtech is just the handset view that you have. And then has anything really changed around your segment margin expansion expectations of 40 to 70, it looks like maybe that came down a little bit, but maybe you can complete that list for us.

Bob Livingston

Got you. Brad said, Brad’s going to give you the detail response. My response sitting here as we’ve looked at this over the last three or four weeks is, I don’t think there’s much difference in our guidance and our outlook for 2012 versus what we shared with your at Dover Day, perhaps a little bit of minor noise around margin expectations but it’s minor. But, Brad, do you want to add anything?

Brad Cerepak

Yeah. I think I would just say, I think you understand the sales well. You articulated that correctly, little bit changed there, not much. With respect to margin expectations at Dover Day there’s really no major changes. I would say, the minor things I would say is we would expect DE and DES to be a bit stronger than what we’ve said at Dover Day and DPI maybe a little bit less.

And your observation is correct, I think total segment margin expansion is probably, we said 40 to 70 basis points. We’re probably 10 off on that range at this stage. It’s not much. Not much change is the way I would think about it.

Terry Darling – Goldman Sachs

Okay. Helpful. And Bob, can you explain more why this shift from gas to oil is a positive -- is a net positive for Dover and in that context, the 8% to 10% organic is kind of in line with that rig count forecast you have and you’ve been outgrowing the rig count in a couple years past. So let me just square those up.

Bob Livingston

Okay. So there’s two questions there. So let me give you a little bit of color on the markets for Energy, drilling, production and downstream. And drilling we -- because of the -- I call it the tapering off of the growth rate and the rig count deployment for drilling growth in 2012. We’re looking at mid single-digit growth in drilling next year, 6% to 7% and downstream and production, low double digits. So that gives you a little bit of color on the markets.

Your question on why the shift to oil favors us. Well, to be rather -- to be better rather frank about it, on a typical gas well to bring it in production, we will get maybe $10 or $12,000 of revenue per completed gas well on an oil well or a liquid-rich well. It’s about $50,000. We just have more product content.

Terry Darling – Goldman Sachs

Okay. And maybe Bob you could help us with the rough percent split of business as you see it now between drilling, production and downstream.

Bob Livingston

Oh! Goodness. Production is about half of the Energy business. Downstream and drilling obviously the balance and the balance is probably split 55,45 in favor of downstream.

Terry Darling – Goldman Sachs

Okay. Great. I’ll past it on. Thanks.

Operator

Your next question comes from the line of Jeff Sprague with Vertical Research.

Jeff Sprague – Vertical Research

Thank you. Good morning, gentlemen.

Bob Livingston

Good morning, Jeff.

Brad Cerepak

Good morning.

Jeff Sprague – Vertical Research

Could you elaborate a little bit, Bob, on the strength that you’re seeing in refrigeration? Is there some new problematic type activity at some big retailers or some share shifts going on, just any additional color that would be great?

Bob Livingston

Well, I wish I could sit here and tell you that the market is booming. But that’s not what we’re seeing and that wasn’t what was behind the fourth quarter strength. In fact, Jeff, I would tell you, we went through the fourth quarter and saw the bookings coming in a little bit stronger than we had anticipated. I have tell you our initial response is we were probably seeing some pull-forward order activity from the first quarter to the fourth quarter and that’s always a bit difficult to predict anyway, the fourth quarter bookings.

So that was sort that our consensus as we were chatting with you at Dover Day. I have to tell you as we, January is not over but we’re three weeks into the New Year and bookings activity at Hill PHOENIX is remaining fairly strong. I think there is some share gain that Hill PHOENIX is capturing and we are seeing a rather significant increase in opportunity for Hill PHOENIX in Canada and Mexico.

Jeff Sprague – Vertical Research

And just wondering on…

Bob Livingston

Jeff, don’t ignore the acquisition that we just completed here for this business and I think it was in November. I think we’ve got about, gosh, we’ve got about $30 million of revenue…

Brad Cerepak

Annual revenue.

Bob Livingston

… annual revenue and are planned in 2012 from downturn.

Jeff Sprague – Vertical Research

Okay. And…

Bob Livingston

Jeff, the businesses are doing very well.

Jeff Sprague – Vertical Research

Yeah. It sounds like you’re still taking some nice share.

Bob Livingston

Yeah.

Jeff Sprague – Vertical Research

Just thinking about your deal pipeline and obviously, it just depends on when things close and all that and I get that, but is the window closing and it stands for 2012 deals to be able to add to 2012 earnings just thinking now the timing of when things might close and your knowledge, obviously what’s in the pipeline on handicapped and what might close?

Bob Livingston

Well, it ends up being deal specific like it always is, if we can close on a couple or three deals here in the next three to four months, obviously the timing of that early in the year gives you the opportunity to have a little bit of opportunity for EPS accretion.

But at the same time, each deal is going to be unique with respect to the integration cost and some of the upfront costs to bring in the business ended over. Let us announce the deals and we’ll give you some guidance as we make the deals.

Jeff Sprague – Vertical Research

Right. Fair enough. Thanks, guys.

Operator

Your next question comes from the line of Shannon O’Callaghan with Nomura Securities.

Shannon O’Callaghan – Nomura Securities

Good morning, guys.

Bob Livingston

Good morning.

Brad Cerepak

Good morning, Shannon.

Shannon O’Callaghan – Nomura Securities

Hey. As you think about this year-over-year decline in the Printing & ID margin, I know we have the semi stuff and solar, but you guys had also obviously been ramping a bunch of investments in the product ID side of things. I mean, can you of the 640 basis point decline, give a broad stroke of what the chunks of that are?

Bob Livingston

The fourth quarter decline I think would be primarily due to the lower volume in semi and solar, and the other electronics part of the business compared to the fourth quarter of 2010. But we have and making some significant investments. We continue making some significant investments with Markem-Imaje, as well as Datamax-O’Neil and some of the decline in the fourth quarter was attributed to some minor margin declines at Markem-Imaje, do you want to add any color to that?

Brad Cerepak

Well, yeah, I would agree with that, Bob. I think they’re minor and they do reflect -- they do principally reflect a little bit of investment and we saw a little bit of a mix in the fourth quarter as well that work a little bit of against Markem-Imaje, but nothing significant and nothing permanent.

Shannon O’Callaghan – Nomura Securities

Okay.

Bob Livingston

And let me clarify that. What Brad refers to the mix issue in the fourth quarter? Printer sales were a little bit higher percentage of revenue for Markem-Imaje in the fourth quarter than consumables and I think that reflects the sort of the surge that the guys are seeing with the take-up of the new product offerings.

Shannon O’Callaghan – Nomura Securities

Do you have, I mean is Markem-Imaje kind of back to where you wanted it to be after you had the kind of take the margins down for investment purposes to get the new product out or is that still kind of ramping?

Bob Livingston

I would label that still a work in process. They asked me that question a year from now and I’d like to be able to answer, yeah.

Shannon O’Callaghan – Nomura Securities

And then just on the margins in Engineered Systems, the strength there, anything unusual you would point out in that or what do you credit that to?

Bob Livingston

Nothing unusual, very broad-based, strong conversion at that segment in the fourth quarter.

Shannon O’Callaghan – Nomura Securities

Okay. Great. Thanks, guys.

Operator

Your next question comes from the line of Robert McCarthy with Robert W. Baird.

Robert McCarthy – Robert W. Baird

Good morning, guys.

Bob Livingston

Good morning, Robert.

Brad Cerepak

Good morning.

Robert McCarthy – Robert W. Baird

Can you give us some visibility on what your expectation is for book-to-bill in the Communications Technologies segment, I mean, do you consider the below 1.0 number in the quarter to be sort of an aberration and we have to look for combination of seasonal factors and stronger order flow to take us back above 1 as early as the first quarter or to take a little bit longer for that to happen?

And is a perhaps related shift in growth expectations for the segment to a little more backend-weighted the explanation for why your organic growth forecast went up a little bit and your acquisition contribution number went down a little bit?

Bob Livingston

Okay. Your first question was around book-to-bill for the fourth quarter and actually, Rob, I would label the fourth quarter of 2011 to be more normal and the fourth quarter of ‘10 to have been a bit of an aberration.

You do typically, especially in the handset business. You will typically see the reduction. You will see a very, very strong order flow in production through mid-November, sometimes through the end of November, sometimes into the middle of December. But typically, December is normally a fairly weak order month for the cell phone guys. And that holds true through Chinese New Year.

Robert McCarthy – Robert W. Baird

Okay.

Bob Livingston

So we’ll see a significant change in order rates as we come back off of Chinese New Year here in a couple of weeks. We would expect order rates in the latter half of the first quarter and the second quarter will be quite strong.

Robert McCarthy – Robert W. Baird

Okay. And so, the related question then of whether the changes, bumping up the organic growth number for Comtech and taking down the acquisition contribution, really it’s first half concentrated, does that, I mean, I sense that you’ve shifted your revenue growth expectations for that segment to a little bit later in the year?

Bob Livingston

That’s true. I would also tell you that we’re probably seeing the opportunity for a little bit more growth at Knowles this year than maybe we shared with you at Dover Day. And when we look at Sound Solutions, I think the guys sitting around me would tell you I’m being conservative, but I have -- we have backed off the Sound Solutions revenue forecast for 2012 or for Sound Solutions by about, I think it’s about $15 million.

Robert McCarthy – Robert W. Baird

Okay.

Bob Livingston

And it’s all Nokia.

Robert McCarthy – Robert W. Baird

Yeah. All right.

Bob Livingston

And I’m sitting here now, I would, if you’re looking for any upside opportunities to our guidance…

Robert McCarthy – Robert W. Baird

Yeah.

Bob Livingston

… I would like to think we could outperform that slightly in 2012.

Robert McCarthy – Robert W. Baird

Yeah. Okay. And my related question to that is, I mean, just really big picture, is it a fair characterization to say that most of the earnings per share growth that you’re forecasting will occur in the second half of the year? I mean you got short-term ramp issues? You got a little bit of hangover from Printing & IDs especially in the first quarter, et cetera?

Bob Livingston

Well, I don’t look at it that way. So I don’t have that detail in front of me but it, from a revenue perspective, I’m not sure I can equate it directly to EPS. Forget organic and comps, I would tell you that when we look at revenue for 2012, about $4.2 billion in the first half of ‘12 and about $4.4, $4.45 number in the second, so the second half is a little bit better than the first half. But, yeah, I’m not sure I would label that as unusual.

Robert McCarthy – Robert W. Baird

Okay. All right. Thanks Bob.

Operator

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

Steve Tusa – JP Morgan

Hi. Good morning.

Bob Livingston

Good morning, Steve.

Brad Cerepak

Good morning, Steve.

Steve Tusa – JP Morgan

Question on the Communication Technologies, can you just help me just help bridge the gap, I – people view this is an iPhone play, but I’m struggling to bridge the gap from what Apple’s putting up and 6% core growth in Communication Technologies and the 7% that you did this year and how that kind of [bridge] it to the ‘11 to ‘13 that you’re talking about for next year, what gets materially better?

Bob Livingston

Okay. What gets materially better, well…

Steve Tusa – JP Morgan

I guess just describe the moving parts because 6% core growth is solid, but not something that I guess that we would expect looking at kind of the smartphone type of volumes you’re talking about. I know there are other businesses…

Bob Livingston

Okay. Well, you look at the whole segment, Steve, well, obviously you know this as well as everyone else that it’s not all handsets, but when you look at the major markets that we’re serving within the segment and I can’t break this out between organic and acquisition, but the area that is down in 2012 is telecom and some other small applications, and that represents about $200 million of revenue for this segment and it’s down 14% in ‘12.

All other segments that we’re serving, we’re showing growth from very, very modest low single-digit on military and I know that seems odd but we actually have line of sight on some growth in military, but it’s very low single-digit. Aerospace and industrial markets we’re seeing growth of 9% to 10% in ‘12, life sciences mid single-digits, by 5% to 6%, and obviously, the bulk of the growth is our handset business.

Steve Tusa – JP Morgan

What was the biggest headwind in the quarter like by those buckets what was the worst type of decline, was it the telecom business?

Bob Livingston

In the quarter?

Steve Tusa – JP Morgan

Yeah. For fourth quarter.

Bob Livingston

Fourth quarter comps against the fourth quarter of ‘10, life sciences was down slightly you know like maybe 3% or 4% year-over-year, military was off slightly, again, 3% or 4% year-over-year, aerospace, industrial was actually up nicely. What was it Brad, 25%, 30% growth in the fourth quarter and everything else was handsets. Actually telecom was down slightly, I think 2% or 3% in the fourth quarter.

Steve Tusa – JP Morgan

So handsets was up what?

Bob Livingston

The balance.

Steve Tusa – JP Morgan

I guess I could walk through with Paul offline.

Bob Livingston

I don’t remember the number. It was well over 100%.

Steve Tusa – JP Morgan

Sure and then one last question just on Engineered Systems, I mean, it looks to me like you guys took that – organic is down from 4 to 6 to 3 to 5, but you’re talking more positively about Hill PHOENIX, is there something else going on in that business?

Bob Livingston

No. I think I would label the guidance at DES to be quite reflective of what we were seeing in the final three or four months of 2011 and we probably got two segments that I would say we’re baking in a little bit conservatism with respect to Europe, those two segments being Printing & Identification and DES.

Steve Tusa – JP Morgan

Got you. One more very quick one, just housekeeping, so I’m just unclear, Sound Solutions looks like you’re guiding out kind of incremental revs of about $150 million to $160 million. You have been expecting something at around $200 million I think. Again, is this a customer issue or is this – you said it automation prob or ramping production ramp problem or what exactly is that?

Brad Cerepak

I would say we’re not guiding down on that full year number for 2012. As Bob said, if you think about where we were last time on this call to where we are now maybe $15 million guide down, but the number remains substantially unchanged and a lot higher than the number you’re talking about.

Bob Livingston

The only difference between what we’ve been sharing over the last couple of calls, and our guidance and outlook for 2012 is about a $15 million reduction and how we look at Sound Solutions revenue opportunity in ‘12 and as I said earlier, it’s all round Nokia.

Brad Cerepak

Nokia and a little bit of RIM.

Operator

Your next question comes from the line of Scott Davis with Barclays Capital.

Scott Davis – Barclays Capital

Hi, guys. Good morning.

Bob Livingston

Good morning, Scott.

Brad Cerepak

Good morning.

Scott Davis – Barclays Capital

Specifically for you Brad, I mean we haven’t talked about the whole concept of centralization in a while and some of the things you’re working on like procurement and such I mean can you give us an update there? Are we pretty much done or is there more to do in 2012?

Brad Cerepak

Well, there’s a lot more to do and we continue to work on it. I would say we still expect more incremental impact in 2012 on our supply chain efforts, and I would say that that number is pretty much – the incremental is pretty much in line with what we achieved in 2011. So, we continue to see good opportunities there.

We’re working on lot of other areas including efforts around our IT infrastructure and as well as we’re in a very early days of taking look at some back office opportunities. And you’ll perhaps see that unfold a little bit as we get later into 2012 about things that we can expect to achieve in the back office and to IT, but that’s an area that up to now Dover hasn’t spend a lot of time working on. It’s the natural progression coming off of our supply chain efforts in centralization.

Scott Davis – Barclays Capital

Make sense. Just following up a little bit from Steve’s first question, we saw this list of Apple suppliers and it’s the first time I can remember saying the list may be they put it out before, but it’s first time I’ve seen it.

Bob Livingston

It’s the first time they’ve published that.

Scott Davis – Barclays Capital

Obviously, they list you guys and then they list your key MEMS competitor AAC. Have some of the capacity constraint issues that you guys are talking about, is that opened a door a bit for somebody like AAC to build out scale and be able to compete more effectively with you guys? How do you kind of view that?

Brad Cerepak

Number one, I don’t think we’ve had a capacity constraint issue that has led to a position where we have not been able to satisfy or support a customer in the way they wanted us to support them. So let’s be sure about that.

This is a pretty large market, it’s becoming a larger market and it would – as much as we would like to say, we’re the only one in the market, this is something we’ve known is going to be happening ever since we acquire the business in 2005. It was interesting, someone asked earlier about the assumptions around Energy – let me tell you the assumptions around MEMS for this year and next year, number one, we still believe there’s going to be significant MEMS encroachment on the old-style audio technology for microphones.

We think that’s still has a lot of room to move and that as we see that further encroachment on MEMS technology, we believe we’re going to maintain a very, very high share of the MEMS microphones for the cell phones guys. For the next two to three year, we believe there’s going to be continued growth in the cell phone market. There will be competition, it’s a big market.

Scott Davis – Barclays Capital

How much does that help having Sound Solutions now? I mean does that allow you to, for lack of better word, bundle or – how does that kind of work? Are they still pretty disparate businesses?

Bob Livingston

I don’t like the word bundling, but it sure does help on cross selling. In fact, I would tell you that it is interesting when you look the target opportunities and revenue opportunities for Knowles. In the MEMS business in 2012, we’ve added two customers for 2012 that we did not have prior to Sound Solutions and the cross-selling has been a result of Sound Solutions.

Scott Davis – Barclays Capital

Okay. Good. Thank you, guys.

Operator

Your final question comes from the line of Nigel Coe with Morgan Stanley.

Nigel Coe – Morgan Stanley

Thanks, good morning.

Bob Livingston

Good morning, Nigel.

Nigel Coe – Morgan Stanley

So you must get through the whole call without fielding a single semi-cap question. Don’t worry I’m not a cheater.

Bob Livingston

I’ll kill you, Nigel.

Nigel Coe – Morgan Stanley

Don’t worry I’m not going to go there. I just wanted to dig in a little bit on the comps given it’s in the segments and you saw a really nice ramp up in margins from 3Q to 4Q and I’m actually wondering how much of that was due to the Sound Solutions yield improvements and how much was just due to acquisition accounting which rolled forward – which washed out in 4Q?

Bob Livingston

I’m not sure I understood the question, Nigel.

Nigel Coe – Morgan Stanley

The sequential improvement in Comtech margins from 3Q to 4Q?

Bob Livingston

I would label the bulk of the improvement – just the elimination if you want to call it that of some of the deal cost we incurred in the third quarter. In fact, I commented about some of the production ramp up cost.

I will confess that the yields in the fourth quarter at Sound Solutions weren’t much better than they were in our third quarter and that’s a challenge we’re going to continue to struggle with as I commented earlier going into the first quarter until we can get the automation completely online and that’s going to be late this quarter and into the mid of the second quarter before that project is complete.

Nigel Coe – Morgan Stanley

Are you still aiming to have the automation lines up and running by March I think?

Bob Livingston

Let’s see, there are schedule Nigel. The first one is actually up and running now. The second line is being tested and prepared for handoff to manufacturing as we speak and it’s probably in total about a five or six week process to complete that transition. The third automation line, I don’t think it goes into the factory until early March and that’s why I say it’ll be well into the second quarter before that one is complete.

Nigel Coe – Morgan Stanley

So we got a yield improvement story coming through the next two quarters?

Bob Livingston

Yeah. We do.

Nigel Coe – Morgan Stanley

Okay. I know you guys don’t give quarterly guidance, but…

Brad Cerepak

That’s right. We’re not…

Nigel Coe – Morgan Stanley

But on the comp side, you got Chinese New Year so you would expect to have some volume absorption issues coming through, well, it looks like absorption issues coming through in 1Q, then you have the yield improvement coming through from Sound Solutions. How should we think about 1Q margins in comps compared to 4Q?

Brad Cerepak

For Dover or for this for Communication Technologies?

Nigel Coe – Morgan Stanley

Exactly Comtech.

Bob Livingston

Comtech, got you. I don’t have that Brad, do you? Hardly similar?

Brad Cerepak

High level I would say the volumes, because the Chinese New Year are down, down off of the fourth quarter and therefore we would expect the margins to follow suit. We don’t give specific guidance, but that would be a normal pattern I would expect.

Nigel Coe – Morgan Stanley

Okay. That’s really helpful and then Brad, just quickly 4% to 7% core growth, does that includes FX as well?

Brad Cerepak

Yeah. It does.

Nigel Coe – Morgan Stanley

Okay. Great. Thanks, guys.

Operator

Thank you. That concludes our question-and-answer period. I would now like to turn the call back over to Paul Goldberg, Vice President of Investor Relations for closing remarks.

Paul Goldberg

Thanks, Jackie, this concludes our conference call, and with that, as always I’d like to thank you for your continued interest in Dover and we look forward to speaking to you again next quarter. Thanks a lot and have a good day. Bye.

Operator

Thank you. That concludes today’s fourth quarter 2011 Dover Corporation earnings conference call. You may now disconnect your lines and have a wonderful day.

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