Dover Corporation's (DOV) CEO Robert Livingston on Q2 2016 Results - Earnings Call Transcript

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Dover Corporation (NYSE:DOV)

Q2 2016 Earnings Conference Call

July 21, 2016 10:00 AM ET

Executives

Paul Goldberg - Vice President, Investor Relations

Robert Livingston - President and Chief Executive Officer

Brad Cerepak - Senior Vice President and Chief Financial Officer

Analysts

Andrew Obin - Bank of America Merrill Lynch

Shannon O’Callaghan - UBS

Julian Mitchell - Credit Suisse

Joseph Alfred Ritchie - Goldman Sachs & Co.

Jeffrey Sprague - Vertical Research Partners

Steve Winoker - Bernstein

Stephen Tusa - J.P. Morgan

Nigel Coe - Morgan Stanley

Presentation

Operator

Good morning, and welcome to the Second Quarter 2016 Dover Earnings Conference Call. With us today are Bob Livingston, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and CFO; and Paul Goldberg, Vice President of Investor Relations. 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, Kristen. Good morning and welcome to Dover’s second quarter earnings call. With me today are Bob Livingston and Brad Cerepak.

Today’s call will begin with some comments from Bob and Brad on Dover’s second quarter operating and financial performance, and follow with our outlook for the remainder of 2016. We will then open the call up 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, Form 10-Q, investor supplement and associated presentation can be found on our website, dovercorporation.com. This call will be available for playback through August 4, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-585-8367. When accessing the playback, you’ll need to supply the following access code, 43614405.

And 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 by referring to our Forms 10-K and 10-Q 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.

Robert Livingston

Thanks, Paul. Good morning, everyone, and thank you for joining us for this morning’s conference call. Our second quarter results excluding deal costs and one-time items were generally in line with our expectations, but disappointing nonetheless.

Now, let me share some specific comments on the quarter. Within the quarter, our June revenue, earnings and bookings were significantly improved from April’s results. We expect to see this positive momentum carry into the third quarter and give us confidence for an improved back-half of the year.

From a geographic perspective, excluding our Energy segment, our U.S. activity remains solid and grew organically low-single-digits year over year. Our European markets were down sequentially and year over year on an organic basis. China improved sequentially, but remained down from the prior year. We continue to be challenge by weak energy market dynamics.

Though we believe that second quarter will mark the low-point of our 2016 performance in our Energy segment, our markets improved, albeit low April, as North American rig count modestly increased and the price of oil remained in the mid- to high-40s. While, the recent trend is encouraging year-over-year rig count and customer CapEx were still down substantially.

These factors drove our second quarter revenue down about 9% sequentially. This result was slightly better than expected as we continue to see the positive impact of our share gain initiatives.

Engineered Systems’ organic growth was 2%. As the Printing & Identification platform had a very strong quarter posting organic growth of 9%. These outstanding results we’re seeing both by our marking and coding, and digital textile equipment businesses. In the industrial platform, organic revenue declined 2%. This result was primarily driven by environmental solutions due to some deferred activity and tough comps against a very strong second quarter of 2015.

Fluids posted 16% revenue growth, driven by several recent acquisitions. On an organic basis revenue declined 8%. Our businesses with direct oil and gas exposure, and those businesses serving integrated energy customers posted declines greater than we anticipated. Our businesses serving the hygienic and food, and pharma continued to show growth.

Our Refrigeration & Food Equipment segment grew 1% organically, principally driven by increased volume in display and specialty cases with several retail refrigeration customers. In all, retail refrigeration grew 4% organically in the quarter. Our food equipment markets were mixed, where very weak results in our food processing business in Europe offset growth in other food equipment end-markets.

Regarding acquisitions, we have closed three deals this year, including Tokheim, and have signed an agreement to acquire Wayne, which we are very excited about. Our teams have been fully engaged planning the integration of Wayne and Tokheim, and the market response to the announcement has been positive.

We anticipate the transaction will close around the end of the third quarter. When Wayne closes we will have a $1.4 billion presence in the fuel distribution and retail fueling market, and be able to provide a unique product and service offering to our global customers. This deal along with others furthers our strategy to position Dover with a stronger long-term growth profile.

Now, looking forward, within Energy we are maintaining our full-year revenue guidance. We see modest sequential improvement, assuming current oil prices and the North America rig count stay constructive. Initially, we expect our artificial lift business will benefit from increased MRO activity at the well-site. We also believe an increased completion rate for drill, but uncompleted wells will continue, especially in lower cost basins like the Permian. In all, we expect second-half revenue to be about 2% higher than first-half revenue.

In Engineered Systems, our expectations for organic growth are unchanged. We expect the marking and coding business to grow mid-single-digits and our digital textile businesses to have double-digit growth. Within our industrial platform, we expect revenue in the second-half to be similar to the first-half.

Fluids decline in organic revenue will be more than offset by growth from acquisitions. In our current forecast, we have lowered the high-end of our organic revenue as a result of continued soft markets. We have also reduced our growth rate for Tokheim as China activity in volume and other emerging markets is expected to remain weak in the back-half of the year. We expect the solid growth we’ve seen in our hygienic and pharma markets to continue.

Finally, within Refrigeration & Food Equipment we are trimming the high-end of our full-year forecast for organic revenue growth. While our retail refrigeration business remains solid, driven by our leading technology and merchandising solutions, we anticipate can-shaping orders and shipments to push out over year-end. We have a strong backlog within retail refrigeration, and I’m pleased we have made good progress in our productivity and efficiency initiatives.

In summary, I feel confident that our energy segment will show modest improvement in the back-half of the year. We expect our U.S. industrial markets to remain positive and for Europe and China to modestly improve.

Our pipeline remains active and we expect to announce a few additional deals before year-end. With respect to guidance, we are adjusting our full-year EPS guidance to $3.35 to $3.45, principally reflecting the impact of our full - of our reduced full-year revenue forecast and for deal cost in one-time items.

With that, I’ll turn it over to Brad.

Brad Cerepak

Thanks, Bob. Good morning, everyone. Let’s start on Slide 3 of our presentation deck. Today, we reported second quarter revenue of $1.7 billion, a decrease of 4%. This result included in organic revenue decline of 7%. Growth from acquisitions less dispositions was 3%. EPS was $0.76 including $0.04 of restructuring costs, deal costs of $0.02 and $0.04 of one-time items.

Segment margin for the quarter was 13.1%, 250 basis points below last year. Approximately half of the margin reduction was due to higher year-over-year restructuring deal costs and one-time items. Bookings decreased 2% from the prior year to $1.7 billion. Within this result, acquisition growth of 6% was more than offset by the combined impact of reduced oil and gas markets, dispositions and FX.

Organic bookings in our Engineered Systems and Refrigeration & Food Equipment segments grew 4% each, overall book-to-bill finished at 1.01%. Our backlog decreased 6% to $1.1 billion and was down 1%, when excluding dispositions. Of note, backlog increased 2% sequentially, largely reflecting retail refrigeration activity.

Free cash flow was $172 million for the quarter or 10% of revenue. Our cash flow conversion to net income benefited from actions to reduce working capital. We expect to generate free cash flow of roughly 11% of revenue for the year.

Now, turning to Slide 4, Engineered Systems increased organic revenue 2%, while Refrigeration & Food Equipment was up 1%, these increases reflects solid growth in Printing & Identification and in retail refrigeration. Fluids’ organic decline of 8% was largely driven by oil and gas exposure. Energy organic decline was 28% driven by weak North American oil and gas markets. As seen on the chart, acquisition growth in the quarter was most prevalent at Fluids with 24% growth.

Now on Slide 5, Energy revenue of $259 million decreased 29%. Earnings were impacted by restructuring cost of $6 million, as well as other one-time costs of $5 million from our decision to temporarily suspend production at several plants and $2 million in settlement costs. Adjusting for these items, earnings were $13 million and margin was 5% in the quarter.

This margin performance largely reflects significant volume declines and price reductions of approximately 2%. We expect $6 million of restructuring charges in the third quarter, $3 million higher than our prior forecast for this segment. We continue to believe we can exit the year with margin near 10%. Bookings were $246 million and book-to-bill was 0.95.

Turning to Slide 6, Engineered Systems’ revenue of $592 million was flat overall and included organic revenue growth of 2%. Earnings of $104 million increased 8%, principally reflecting the benefits of productivity, volume leverage and a favorable product mix.

Our Printing & Identification platform revenue of $264 million increased 15%. Organic revenue was up 9% primarily reflecting strong global marking and coding, and digital printing equipment activity. Acquisitions added 8% growth, while FX was 2% negative.

In the industrial platform, overall revenue declined 10% to $329 million comprised of an organic decline of 2% and a 7% impact from dispositions. The organic revenue decline primarily reflected activity deferrals in tough comps in our environmental solutions business.

Margin was 17.6%, a 130 basis point improvement. Bookings of $571 million were up 2%, which included organic bookings growth of 4%. Organically, printing and identification bookings increased 14% and industrial bookings decreased 2%. Book-to-bill for Printing & Identification was 1.01. Industrials book-to-bill of 0.93 reflects deferred order activity with environmental solutions. Overall book-to-bill was 0.96.

Now, moving to Slide 7, within Fluids, revenue increased 16% to $406 million, while earnings decreased 23% to $54 million. Revenue performance reflects 24% growth from acquisitions, partially offset by an 8% decline in organic revenue.

The organic decline was driven by our businesses with direct oil and gas exposure, lower spending in certain integrated energy customers, particularly retail fueling and project timing. This decline was partially offset by continued solid results in our hygienic and pharma markets.

Regarding acquisition growth, our retail fueling activity in China was weak, as were other emerging markets. Margin declined 670 basis points in the quarter, reflecting lower organic volume, the impact of acquisitions, $4 million in deal costs and $3 million in incremental restructuring costs. Excluding acquisitions related deal costs and restructuring margin was 19.4%, a decrease of 80 basis points over an adjusted prior year.

Bookings were $414 million, an increase of 24%. This result primarily reflects the impact of acquisitions. On an organic basis bookings declined 1%. Book-to-bill was 1.02.

Now let’s turn to Slide 8, Refrigeration & Food Equipment’s revenue of $429 million was down 4% overall and included organic revenue growth of 1%. Earnings of $63 million declined 4% from the prior year. Earnings were flat with last year after adjusting for our recent disposition. Organic revenue growth was largely driven by increased volume with several retail refrigeration customers, especially in the display and specialty case product lines. Within Food Equipment results were mixed.

Solid results in commercial food service and can shaping equipment were offset by weak European food processing equipment results. Margin was 14.7%, unchanged from last year. Bookings were $469 million, down 4%. This result includes 4% organic growth, offset by dispositions and FX. Organic growth was primarily driven by strong retail refrigeration bookings. Book-to-bill was a seasonally strong 1.09. Of note, book-to-bill for retail refrigeration was 1.13 as compared to 1.06 last year.

Going to the overview on Slide 9, let me cover some highlights. Corporate expense was $25 million and net interest expense was $32 million, both largely in line with our expectations. Our second quarter tax rate was 27.3% excluding discrete tax costs, slightly lower than our prior forecasted rate. CapEx was $35 million in the quarter.

Now, moving to Slide 10, which shows our full-year guidance, as Bob mentioned, our 2016 revenue guidance has been adjusted on the high-end to reflect reduced forecast for Fluids, and Refrigeration & Food Equipment. We now expect total revenue to decrease 3% to 5%. Within this estimate, organic revenue is expected to decline 6% to 8% as compared to our prior forecast of down 5% to 8%. We expect acquisitions will add approximately 7% growth, partially offset by dispositions and FX.

At the midpoint of our guidance, adjusted segment margin is expected to be around 15%, excluding restructuring and deal costs and one-time items. Corporate expense is now anticipated to be $108 million for the year, $12 million below our prior forecast on reduced spending. Our full year forecast for interest expense is unchanged and the pre-discrete tax rate has been slightly lowered to be in the range of 27.5% to 28%.

From a segment perspective, Energy and Engineered System’s full-year organic revenue forecasts are unchanged from our prior guidance. Fluids’ organic revenue has been reduced two points on the high-end, and now is forecasted to decline 4% to 5%. Refrigeration & Food Equipment organic revenue has been lowered one point at the high-end and now stands at 2% to 3%. The impact of acquisitions, dispositions, and FX remains unchanged.

Turning to the 2016 bridge on Slide 11, let’s start with 2015 adjusted EPS of $3.63. We continue to expect the year-over-year impact of lower restructuring cost in 2016 to be $0.07. Performance including volume, productivity pricing and restructuring benefits will impact earnings $0.37 to $0.31. This is reduced $0.20 from our prior forecast and now includes $0.05 of deal costs and $0.04 of one-time costs.

Increases in investment and compensation will impact earnings $0.20 to $0.17, reflecting roughly $0.02 lower spend from our prior forecast. Acquisition plus dispositions will be about $0.12 accretive in total, $0.04 lower than our prior forecast, primarily driven by slower activity in China retail fueling markets and other emerging markets.

The combined impact of interest, corporate expense and the tax rate is about $0.06 better than our prior forecast, driven by reduced corporate expense and a slightly lower tax rate. Lastly, discrete tax benefits of $0.04 are included in our forecast. In total, we expect 2016 EPS to be $3.35 to $3.45, down about $0.19 at the midpoint from our prior guidance.

Approximately, $0.09 of this reduction is attributable to deal costs and one-time cost, and a remainder is driven by a lower revenue forecast in Fluids and Refrigeration & Food Equipment, offset in part by lower corporate expense and a reduced tax rate.

With that, I’m going to turn it back over to Bob for some final comments.

Robert Livingston

Thanks, Brad. Let me share some summary comments, as we move into the back-half of our year. We saw a strong organic booking growth in Engineered Systems and Refrigeration & Food Equipment, which sets them up well for their second-half revenue plan. In energy, we expect improved sequential performance driven by modestly improving markets, share gain initiatives and a reduced cost base. We also see a renewed focus on land-based drilling and production, especially in lower cost basins.

Within Fluids, second-half revenues will be up to seasonality in our retail fueling business and continued strength in our pharma and hygienic applications. We are excited about our growth and margin expansion opportunities in the retail fueling market, especially with the addition of Wayne.

I am pleased with the many positive changes we’ve made to our business profile over the last few years. We now have several large businesses with global scale and you should expect us to continue the strategy of creating great businesses across our growth markets. In all, I believe we’ll demonstrate much stronger performance in the second-half. We remain focused on improving our financial performance and increasing shareholder value.

With that, I’d like to thank our entire Dover team for staying focused on our customers.

And now, Paul, let’s take some questions.

Paul Goldberg

Thanks, Bob. Before we take the first question, I just like to remind you as a courtesy, we have several people in queue. So if you can limit yourself to one question with a follow-up, we’ll be able to take more questions. And with that, Kirsten, if we can have the first question.

Question-and-Answer Session

Operator

Certainly, our first question comes from Andrew Obin with Bank of America.

Andrew Obin

Good morning, guys.

Robert Livingston

Good morning, Andrew.

Brad Cerepak

Good morning, Andrew.

Andrew Obin

I’ve just a question and I’ve been getting a lot of questions from investors this morning on Energy. Can you just give us some more color as to what gives you reassurance? I mean, the book-to-bill is still below 1 on Energy. What gives you reassurances that things are in fact improving? And when do you think we’re going to start seeing improved bookings? And just a follow-up, I’ll to the follow-up right now, on Fluids, on pumps how bad is the weakness and how long do you think it will last? So these are my questions. Thank you.

Robert Livingston

All right, good. Energy, I think, we started to see the change in Energy in the second quarter, Andrew. There was - actually in my prepared comments, I made a comment that June was much stronger than April and that comment was across the board within Dover. But it was noticeably so within Energy.

Our upstream order activity and Energy in June was up 18% over April. And our expectation for the third quarter and Energy order rates here in the first two, three weeks of July, we’re actually running slightly ahead of our third quarter forecast, especially in what we will label as the early cycle business activity around our rods and our ESP pumps.

We see the term and we feel fairly confident with our forecast for the second-half of the year. In fact, I would - I think another two or three weeks of order activity, like we’ve seen in the past three weeks, maybe I would label the revenue and earnings forecast for Energy as having a little bit of upside for the year.

Andrew Obin

And on Fluids?

Robert Livingston

Fluids, the oil-and-gas hit is in our pumps business, and it’s not just standard. For the most part we’ve been dealing with declines in our standard pumps through distribution, which we continue to see a little bit of that here in the second quarter. It was a bit more than we expected. But the most significant thing in the second quarter was the loss of a - I will label it as an oil and gas project. We lost it on price and it was within our engineered pumps business group, not our standard pumps. It was a one-off order.

Andrew Obin

And do you have a sense how long you think - when do you think orders there start turning positive or could flatten out?

Robert Livingston

Yes, within the oil and gas piece of our Fluids that one is tough to call. If you look back at the - as our Energy cycle or as the Energy cycle started, we probably didn’t see a measurable downturn in our pumps business for probably at least three months after we started to see the downturn in our Energy segment. If we truly are at a turning point here in the Energy cycle, Andrew, my best guess is we are not going to see much of a change in order activity within our pumps business related to oil and gas into early next year.

Andrew Obin

Terrific, thank you very much.

Robert Livingston

We are not forecasting anything, any pickup in our pumps business related to oil and gas in the second half, that’s for sure.

Andrew Obin

Thank you.

Operator

Our next question comes from Shannon O’Callaghan with UBS.

Shannon O’Callaghan

Good morning, guys.

Robert Livingston

Good morning, Shannon.

Shannon O’Callaghan

Hey, Bob, maybe just a little more explanation on the thought process around the plant shutdowns you decided to do in Energy during the quarter. And then, I think, Brad said that you are ramping up the restructuring more of the third quarter. Yes, that sort of - in the same mix that you’re sounding, you’re sounding lot more positive on the market. So it seems like you’re doing shutdowns and more restructuring, but believing in the turn, so may be reconcile those.

Robert Livingston

As we entered the second quarter, we did have additional restructuring plan, especially in our rods and our pump businesses around artificial lift. And as April unfolded, even though it was as bad as we expected, Shannon, we were sort of firming our opinion that we would see a turn here in the rig count, before the end of the second quarter. And we made a decision to hold the workforce intact in May and June instead of having employee separations.

We shut - I believe you know the count. I think it was at least four factories down for two weeks in the second quarter instead of employee separations. It did call some P&L charges to the quarter that we did not have in our initial forecast or planning, but I would tell you now, recognizing the change in the order rate activity during June, I’m glad we made that decision, the restructuring that we have scheduled for the third quarter, and I think it’s primarily in the third quarter, isn’t it for Energy?

Brad Cerepak

Yes, in the third quarter, it’s incrementally up $3 million in Energy, but in total.

Robert Livingston

In Energy, but it’s in artificial lift interest…

Brad Cerepak

Just in total for the company we’re still forecasting the same level of total restructuring, but Energy is up. And, maybe, Bob, you want to…

Robert Livingston

Yes. And the restructuring activity in the third quarter is not in artificial lift, it’s in a couple of the other businesses. And, Shannon, I would - Brad, correct me if I’m wrong. But I think the charges we have in the third quarter, we do expect the benefits in the second-half of 2016 to equal or be even better than the charges we take.

Shannon O’Callaghan

Okay, great. Thanks. And then, just on Fluid margins, as we work up from kind of a 2Q level on Fluid margins to the back-half where do you see them going, I know the elimination of, I guess, the Wayne dale costs will be part of the lift. What else we have going on and what do you think Fluid margins look like for the year now?

Robert Livingston

So reported Fluid margins in the quarter were a little better than 13%, but if you adjust for - if you adjust for restructuring and some of our one-time cost, especially our deal cost that we had in the second quarter, it’s 19%. It is interesting to still note, Shannon, that if we look at our core business. And now I’m excluding our acquisitions that we’ve added here over the past, over the past several months, our core business excluding restructuring and one-time cost was 19.4%. And our forecast for the year in this segment on the same basis - just looking at the core, the margins on our core business, excluding deal cost, 19.9%, almost 20%.

Shannon O’Callaghan

And then, what you think it is going to look like kind of on a reported basis at this point?

Robert Livingston

All cost in 16% - 15.5% to 16%.

Shannon O’Callaghan

Sorry to just belabor this, so the deal costs go away versus 2Q when you’re at 13.3%, what else lifts you from 13% up to, say, like high-teens in the back-half all in?

Robert Livingston

Shannon, a big change in the second-half with respect to Fluids is volume improvement. You’re going to have to help me here, Brad, with the number, but I think the volume increase in the second-half over the first-half. And I don’t have it compared to the second quarter, but I’m just doing second-half versus first-half. I think the volume improvement is about a $100 million, maybe even slightly more than that, but rough number $100 million.

And that’s driven by the normal seasonality we’re expecting in our retail fueling business and continued strength in our hygienic and Pharma markets. And we do have a change here in the second-half. We feel like we’ve got the benefit of some favorable product mix in the second-half. We’re going to have very good conversion on this volume in the second-half.

Shannon O’Callaghan

Okay. Great, thanks guys.

Operator

Our next question comes from Julian Mitchell with Credit Suisse.

Julian Mitchell

Hi, thank you.

Robert Livingston

Good morning.

Julian Mitchell

Hi, just a question on overall on organic sales growth, so organic sales fell about 7% in the first-half, the year as a whole implies down 7% for the second-half. But you talked about a big or a - or a meaningful sort of delta across the board in June relative to April. So I’m just trying to understand why there is no improvement in sales given an easier comp in the back-half?

Robert Livingston

Well, that answer maybe starts and ends with a comment on Energy. Even though, sequentially we are forecasting a very modest improvement in Energy. Our organic revenue in the second-half within our Energy segment is still down 19% versus last year.

Julian Mitchell

Okay. And then secondly, within Fluids, on the booking side bookings have been sort of flattish organically, but our six months the organic sales worse than that. So maybe just give us a little bit of insight into how much of Fluids is sort of book and ship, and how much visibility the recent bookings give you on the three to six months sales looking out?

Robert Livingston

Sure, if I define book and ship, let’s say, bookings that ship within 90 days, not necessarily within 30 days, my guess would be, Julian, that 75% of Fluids bookings would fall into the book and ship category, book and ship within 90 days. We did see a significant increase in bookings within this segment, as we moved through the quarter.

In fact, the - we started to see, it was a bit late. We actually started - we actually expected to see this in May and it didn’t happen. But the June order rates within Fluids were up 13% or 14% versus April. And this is the start of our seasonal period within retail Fueling and we expect to see that continue.

I’d add a little bit of extra color. If we look at the order rates for the first two to three weeks of July, across the board our order rates are very supportive of our third quarter forecast.

Julian Mitchell

Very helpful, thank you.

Robert Livingston

We will see a significant increase in retail fueling business activity in the second-half.

Julian Mitchell

Great, thanks.

Operator

Our next question comes from Joe Ritchie with Goldman Sachs.

Joseph Alfred Ritchie

Thank you. Maybe just following upon…

Robert Livingston

Good morning, Joe.

Joseph Alfred Ritchie

Hey, good morning. Maybe just following up on that last point on the expectation for a big increase in the second-half of the year, you took Tokheim forecast for the year. I’m just curious - give maybe a little bit more color Tokheim. Does that have negative implications for Wayne? And what is - why do you believe that we are going to see a pickup in the second-half in retail fueling?

Robert Livingston

Well, number one on Tokheim, the reduction in our revenue forecast for Tokheim for the year is almost exclusively China. I think it’s, what was it? $14 million is our reduction in the Tokheim revenue forecast. And, Joe, I think we’ve got 12 of that.

Brad Cerepak

12 of it is China.

Robert Livingston

…is China. We expect Europe to exhibit the normal seasonality that historically has been seen in this market. And our second quarter order activity reflects that. In fact, I think our European dispenser order rates in the second quarter, especially in June were quite strong with Tokheim. And I think even for the entire second quarter dispenser bookings - dispenser book-to-bill I think was 1.2.

Brad Cerepak

It was 1.2.

Robert Livingston

…for the second quarter. We are at the front-end of that build in the seasonal ramp in the retail fueling business.

Joseph Alfred Ritchie

Got it, okay. That’s helpful. Maybe, I guess, switching gears, my second question on Energy. The expectation that we could do double-digit - exit the year with double-digit margins, maybe kind of talk me through some of the puts and takes on the restructuring side, because it seems like you’re implying some pretty low detrimentals to exit the year at that rate, even if organic growth is slightly better. So I’m just kind of curious on how we’re getting there?

Robert Livingston

You want to help me with this one, Brad? The plan - what is in our plan and our guidance right now are operating margins within the Energy segment, I think of 9.7% or 9.8% for the fourth quarter. Am I correct?

Brad Cerepak

Yes, yes.

Robert Livingston

Okay. Almost 10%, as I shared in my comments. And we are be - I think we are actually being cautious with this. We are not baking into our expectations, our forecast. I would say the traditional incremental margins that we see on increased revenue within Energy, we have some businesses that have traditionally incrementaled up - converted up, very, very strongly. I think our conversion that we are using in the second-half of the year I think it’s in the low-30s - 32% or 34%.

Traditionally that would’ve been 40%, if not, a bit higher. I think we’re being cautious with respect to anticipating continuing price pressures. And perhaps a little bit of uncertainty as to which product lines actually see the uptick in revenue in the second-half. It is worth noting that here early in July, and I’m repeating myself, we are seeing some - we’re seeing the order rates in our rods business and our ESP pump business come in a bit stronger than our third quarter forecast.

Brad Cerepak

Yes, and, Joe, I guess what I would add to that is first-half restructuring in DE is about $12 million of cost. Second-half we’re looking at half of that, most of that being in the third quarter. With respect to benefits though, benefits are also doubling themselves into the back-half of year. So the first-half benefits on restructurings, moving into the back-half give us strength into the fourth quarter. And that’s also helping us in our view that we can get to 10% margins.

Joseph Alfred Ritchie

Got it, so basically you’re going to hold - you’re going to try to hold margins year-over-year. I mean, organic growth is still going to be negative in the fourth quarter. But the restructuring benefit should help offset. Is that fair?

Brad Cerepak

That’s correct.

Robert Livingston

Yes. Correct.

Joseph Alfred Ritchie

Okay, great. Thanks, guys.

Operator

Our next question comes from Jeffrey Sprague with Vertical Research.

Robert Livingston

Hi, Jeff.

Jeffrey Sprague

Good morning. Hey, hello, could we just touch on price a little bit more? I think they’re down too, that you mentioned, Bob, is in the zone relative to what you were expecting for the year. A little bit of erosion from Q1 and your comment in Q1 was interesting that you thought price wasn’t worse, because there is not enough demand for people to you see any elasticity and therefore why cut price.

I just wonder now if you’re seeing this little pulse of activity how people are behaving on price perhaps it’s too earlier really know.

Robert Livingston

Yes, it’s too early to answer that one, because I would say the pulse in activity is about six weeks old, Jeff. I’ll give you a comp. I think our negative price in the first quarter within Energy for the segment was just a hair under 1%. In the second quarter, it’s a full 2%.

Jeffrey Sprague

Yes.

Robert Livingston

But it wasn’t - I don’t think it was any different in June than it was in April. Okay, that’s getting to the heart of your question.

Jeffrey Sprague

Yes. And I think you were seeing much that minus 1 or 90 basis points whatever it was in Q1 reflected I think high-single-digits declines in rods and maybe parts of the ESP business. Is that not…

Robert Livingston

And our diamond inserts.

Jeffrey Sprague

Diamond inserts?

Robert Livingston

Yes.

Jeffrey Sprague

I’m sure you had a chance to look or listen to Halliburton yesterday, their comment that 900 is the new 2000 as it relates to absorbing horsepower in the rig count. Some of what they said may not be totally analogous to you. I’m not sure if you’re familiar with what they said. But how do you respond to that?

Obviously, part of what they’re saying is longer depths and the like, which would apply you, some of it is pumping more sand, which probably doesn’t. But is there anything you could share with us in terms of Dover value per rig or any changes in kind of the mix of your business that may kind of soften that direct correlation to the rig-count that we’re seeing historically.

Robert Livingston

Near term, I don’t think there is, Jeff. I think for the next couple or three quarters you’re going to see especially - again, especially within our upstream business activity you’re going to continue to see a pretty high correlation with rig count. The longer laterals do benefit us with respect to rods and the pricing around some of our pumps. And I think it will also benefit us. We may not see it right away, but I think it will benefit us with respect to our automation business.

Jeffrey Sprague

Then just one last one, you probably have little more real-time data than I do, but kind of the commentary around the ducks, [ph] what I had heard, there is just really not any major change in kind of the uncompleteds out there. Are you in fact starting to see that, perhaps that’s more in the data in the last month or so?

Robert Livingston

Yes, and I would - you are correct. I would say it’s all within the last month there. The change in June wasn’t stark, but what there was a rate change in June. And I think - I have, I commented this in my prepared comments. I think we will see increased activity around well completions in the second-half.

Jeffrey Sprague

Right, thank you very much guys.

Operator

Ladies and gentlemen, due to time restraints, we do ask that you please limit yourself to one question and one follow-up. Our next question comes from Steve Winoker with Bernstein.

Steve Winoker

Good morning.

Robert Livingston

Good morning, Steve.

Steve Winoker

You maybe just - I just wanted to follow-up one of those earlier points. You’ve got, I recall $95 million or so projected savings in 2016 from restructuring. How far through are you? And you still see that as the number?

Robert Livingston

You’re going to help me on this one, Brad.

Brad Cerepak

I would say, okay, so $95 million. That $95 million has increased since our last discussion on this topic. So I would say at this point we’re about $10 million higher. And remember in the $95 million there is carryover in that number, but which completely from 2015. But in terms of our restructuring we expect to have the 2016 action substantially complete here early in the third quarter. And the benefits flowing through in our P&L this year, again I was talking Energy before between first half, second-half.

If I look at the total company incrementally new benefits over the carryover that number again in first-half doubles itself into the back-half. So we had - think about it this way, we probably had $20 million of savings in the first-half, we’ll see $40 million plus in the back-half of savings plus the incremental piece get you the - let’s call it $105 million, roughly speaking, benefits.

Steve Winoker

Okay, that’s helpful. And then, could you maybe talk a little bit more about, I guess, let’s say, something positive here around Wayne. You laid out for some high-level expectations earlier, when you announced the transaction dilutive in 2016, modestly accretive in 2017, and more accretive in 2018, I guess, the EBITDA in the 130 range including run rate synergies. You have any more clarity around what you’re expecting there, early view, maybe even down in EPS, any thoughts? I’m going to try.

Robert Livingston

Before Brad answers you, I think he is prepared to, let me tell you that even though we believe right now we can close this in the third quarter that’s not entirely under our control. And it is possible that this moves into the early fourth quarter as a close and that will have depending upon the quarter, even though it may only be three or four weeks difference that that will have a bit of an impact on the - impact it has on our results in 2016.

Brad Cerepak

Yes.

Robert Livingston

Now with that qualifier - but there are lots of qualifiers here, Steve.

Brad Cerepak

But let me start by saying that when we talked about - let me just clarify the P&L that we have, the forecast that we currently give you here in this update. It includes deal costs in the second and third quarter in our Fluids business, which we highlighted that’s all related to Wayne.

What we don’t have in our forecast, is any contingent upon completion costs, which will come at the time we complete the deal. If we complete the deal at the end of the third quarter here going into the fourth quarter, we feel pretty confident with the numbers that we had previously stated about the amount of sales that they expect for 2016. We said 550. I think they are actually right on that number to doing quite well, quite frankly.

So without giving a lot of details around seasonality, if you took one fourth of that number, and then you looked at deal costs and amortization step-ups and the like, our view is it will be in the fourth quarter, incremental to the forecast we just gave you, dilutive, because of again finalization of deal costs, amortization step-ups hitting the P&L, positive operationally. But after those costs dilutive and then of course you would have the funding costs or the interest costs associated with the purchase price of $780 million that would also hit the P&L in the fourth quarter.

Steve Winoker

Okay, okay. And Bob, your comments, are you saying, you weren’t saying it’s more likely it’s going to hit the fourth quarter, you’re just saying possible.

Robert Livingston

No, right now our opinion is that it could close in the third quarter. I’m just repeating myself, we don’t control that.

Steve Winoker

Yes. Okay, thank you, guys.

Robert Livingston

We are fully prepared for it to move into the fourth quarter.

Operator

Our next question comes from Steve Tusa with J.P. Morgan.

Stephen Tusa

Hi, hey, good morning.

Robert Livingston

Good morning, Steve.

Stephen Tusa

So just to be clear on what you’re saying on this Fluids stuff, to get to a 15%, close to a 16% margin, that implies something in kind of the - I don’t know, what’s kind of the second-half total profit number? I mean, I have $100 million to start with here in the first-half. Typically over the last three years pretty consistently you’ve been up, half-over-half around high-single-digit.

This would seem to be a more dramatic type of increase. I mean, almost like I don’t know, almost 650 to $60 million maybe $70 million bucks. I mean, I’m just kind of struggling with, why you have this kind of confidence?

Robert Livingston

All cost in - you are using all cost in as opposed to adjusted numbers. So our revenue we’re looking in a better $100 million revenue increase in the second half. And, yes, you are correct, the earnings increase in the second half is just about $60 million.

Stephen Tusa

Okay. And you’re saying that is for a Tokheim business that is underperforming, you’re saying that’s on kind of an organic basis, that’s the retail fueling business?

Robert Livingston

That’s the Tokheim European activity that we expect to be much stronger in the second half and a significant increase in the OPW business with respect to retail fueling in the second half. And the absence of some charges that we had in the first half that aren’t repeating.

Stephen Tusa

But you do have some deal charges in Wayne, I mean is it R&D take more deal charges in Wayne in the second-half as well?

Robert Livingston

We - I think, we have, what, $3 million to $4 million?

Brad Cerepak

We are, Steve, but we did have from the original Tokheim deal, we had rollover of these inventory step ups…

Stephen Tusa

From all the acquisitions?

Brad Cerepak

And all the acquisitions, Gavorez, [ph] all that in the first half, they don’t repeat itself. So the standard amortization stays in place in the second half, but that big inventory rollover is gone, as is restructuring - restructuring in the second half is less than the first half. But you are right, deal costs for Wayne first half to second half in the forecast is basically the same number.

Stephen Tusa

Okay. Is Tokheim on it kind of a run rate basis is Tokheim making money on common all-in, including the amortization that kind of stuff?

Robert Livingston

Including amortization in the first half, I think it was slightly better than breakeven, and the loses which we took, the charges we took in China. And the second quarter, I don’t have - the second quarter was when we made the transition. And we started to see the improved activity at Tokheim, I think it was in May. Steve, the Tokheim, I think 80% of our earnings for Tokheim are actually in the second half of the year.

Brad Cerepak

But after the amortization, the answer is, yes, it is possible, it is accretive.

Stephen Tusa

Okay. And then one last question just on energy. What you see the third quarter being there from a margin perspective?

Robert Livingston

Oh, goodness. I don’t have that, it’s less than the - it’s less than our forecast for the fourth quarter…

Brad Cerepak

It’s kind of linear, it’s linear…

Robert Livingston

So you got the back-end to that, yes.

Brad Cerepak

Yes, it’s linear coming out of the second quarter.

Robert Livingston

5% to 7%.

Brad Cerepak

Yes.

Stephen Tusa

Okay. That makes sense. Thanks.

Operator

Our next question comes from Nigel Coe with Morgan Stanley.

Nigel Coe

Good morning. Hi.

Robert Livingston

Hi Nigel.

Nigel Coe

So just wanted to I mean, cover obviously lot of the major topics. Just wanted to dig into Engineered Systems, the strength in P&I, that’s normally pretty steady business, so the strength you called out is a bit surprising, especially given the underlying production backdrop. So just maybe, Bob, Brad, if you could just address that, maybe throw in color on new products, market share gains et cetera.

Robert Livingston

Yes. Well, the product ID had a very strong quarter Nigel, thank you. The core business, the business we’ve owned for a long time our marking and coding business, help me here with my recall, I think organic growth for the quarter was 6%.

Brad Cerepak

Yes, 5%, 6%.

Robert Livingston

That was strong, but we’ve been working lot of issues there over the last year or so and we’ve seen a lot of improvements in the business. I’ll give you a little bit of color on the marking and coding business beyond that. Sequentially, the business was up I think, 8% or 9% coming out of the first quarter. Nigel, it’s around the world with the exception of China. It’s around the world with the exception of China.

In fact, organic growth for the marking and coding business may have actually been higher in Europe in the second quarter than it was here in the States, which is a bit of a change. But our - we had very strong organic growth here in North America. I think, organic growth in Europe may have been 7% or 8%. And we saw it in both increased sales of equipment as well as consumables. And I would also say it continued to build through the quarter.

Nigel Coe

But I’m assuming the underlying market is not growing.

Robert Livingston

But what looks - pardon?

Nigel Coe

So I’m assuming the underlying market is not growing at those kinds of levels, so I’m just wondering what drove the up-movements [ph].

Robert Livingston

We view the underlying market that this business is serving with a growth of about 3%.

Nigel Coe

Okay, okay. And then you mentioned the environmental solutions business down some deferrals there. Waste management at the well [and the pumps at the well] [ph] is doing quite well right now. So I’m just wondering if you have any context on why there might be some deferrals. And maybe just remind us, how does this business cycle with the broader truck cycle.

Robert Livingston

I’m not sure I have a correlation for you with respect to the broader truck cycle. And my opinion would be that it’s not very highly correlated financial.

In fact, I would tell you that when the truck cycle is up it does create some challenges for our business in just getting customer deliveries on time. The second quarter - we expect to see growth in this business for the year. We expect to see growth in the industrial platform in the year. I think we have a schedule or planned it at 2%. We saw some projects slip out from the second quarter into the balance of the year.

I wouldn’t label it as slip or slips or deferrals with the two major haulers, but more with municipalities, and a recent acquisition with two of the smaller players - a recent merger of two of the smaller players.

Nigel Coe

Okay, okay. I’ll leave it there. But I almost understand it. I can’t agree with the second-half versus first-half. And I believe we can’t get the $100 million of sales ramp up, but we’ll follow-up offline. Thanks, guys.

Robert Livingston

Okay.

Operator

Ladies and gentlemen, we had now exceeded our allotted time for Q&A. And it’s my pleasure to hand our program back over to Mr. Goldberg for closing remarks.

Paul Goldberg

Yes, thank you very much for joining us for the second quarter earnings call. In advance, I’ll apologize for any people who didn’t get on. We tried to get more calls on, but they kind of dragged on a little bit. So I will follow up with you later in the quarter and we look forward to talking to you in the third quarter. Thanks a lot. Bye.

Operator

Thank you. That concludes today’s second quarter 2016 Dover Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.