Bob Livingston - President and CEO Brad Cerepak - SVP and CFO Paul Goldberg - VP, IR.

Andrew Obin - Bank of America Merrill Lynch Christopher Belfiore - UBS Jeff Sprague - Vertical Research Partners Steve Tusa - JPMorgan Deane Dray - RBC Capital Markets Scott Davis - Melius Research John Inch - Deutsche Bank Andrew Kaplowitz - Citigroup.

Good morning and welcome to the Fourth Quarter 2017 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 sir..

Thank you, Crystal. Good morning and welcome to Dover's fourth 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 fourth quarter operating and financial performance, and follow with a discussion of our 2018 guidance.

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. Beginning with our 2018 guidance, Dover will provide adjusted EPS guidance and results, that will exclude after-tax acquisition related amortization.

We believe reporting adjusted EPS on this basis better reflects our core operating results, offers more transparency and facilitates easy comparability with peer companies.

A full reconciliation between forecasted GAAP and forecasted adjusted measures, reflecting adjustments for aforementioned acquisition related amortization, as well as carryover rightsizing costs, is included in our investor supplement.

Please note that our current earnings release, investor supplement and associated presentation can be found on our web site dovercorporation.com. This call will be available for playback through February 13 and the audio portion of this call will be archived on our web site for three months. The replay telephone number is 800-585-8367.

When accessing the playback, you'll need to supply the following access code, 7790239. 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 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 web site, where considerably more information can be found. And with that, I'd like to turn the call over to Bob..

Thanks Paul. Good morning everyone and thank you for joining us for this morning's conference call. I am pleased with our fourth quarter performance, which reflects strong global markets, resulting in broad based revenue growth and solid margin improvement at each segment.

In particular, we had strong organic growth in Pumps, Waste Handling, Food Equipment and at our well site business. A number of other businesses also turned in solid performances, including marking and coding, vehicle service equipment and bearings and compression, resulting in organic growth of 8% in the quarter.

Our organic growth in the quarter and for the full year, I believe, illustrates the strength of our portfolio. In all, our team's focus and execution resulted in a solid quarter, while also making significant progress on the Wellsite spin-off, right-sizing and several other commercial and investment initiatives.

Our right-sizing initiatives in the quarter were important, to align Dover's cost structure with its size post spin. These right sizing actions are expected to deliver $55 million of benefits in 2018. I am also happy with the progress we have made towards transitioning to a more focused portfolio, with strong platforms and attractive markets.

We are firmly on track to achieve our three year revenue and margin targets, which we outlined at our investor meeting last June. We delivered strong organic growth, and increased adjusted margin over 150 basis points in 2017, and are positioned to deliver further growth in margin expansion in 2018.

In conjunction with our portfolio shaping activities, we have continued to build our platforms with two highly synergistic deals which were recently closed. These deals, while not large in scale, are margin accretive and enable us to expand the scope of our offerings and become a more important supplier to our customers.

As we enter 2018, I am excited with our position. The global macro environment is expected to be constructive, leveraged by tailwinds from our productivity and cost initiatives and from U.S. tax reform. In 2018, we were expecting solid revenue growth, strong EPS growth, and another year of strong free cash flow.

Our outlook is supported by continued commitment to our strategy, with a strong focus on margin expansion. I am very proud of the entire Dover team and want to thank them for their hard work and effort, as they continue to focus on serving our customers.

Brad will now take you through the specifics of our fourth quarter performance and 2018 guidance, and I will come back at the end for some closing thoughts..

Thanks Bob. Good morning everyone. As Bob mentioned, we had a solid fourth quarter. We achieved organic growth in all segments and had bookings growth in three out of the four segments. Leverage on this organic growth, combined with benefits of our productivity and cost initiatives, led to strong year-over-year adjusted margin improvement.

There were several highlights in the quarter; including broad based revenue and bookings growth in Engineered Systems, strong performance in Fluids, including broad based bookings growth; continued organic growth and significant year-over-year margin improvement, in refrigeration and Food Equipment, and lastly, strong revenue and bookings growth in Energy.

Also from a geographic perspective, the U.S. and China markets had strong organic growth year-over-year. Let's start on slide 3 of the presentation deck; today, we reported fourth quarter revenue of $2 billion, an increase of 13%. Organic growth of 8% was complemented by acquisition growth of 6%.

Partially offsetting these results, was a 3% impact from dispositions. FX provided a 2% benefit in the quarter. Adjusted EPS increased 49% to $1.13. This result [ph] exclusive costs associated with our previously announced right-sizing initiatives, as well as Wellsite separation related costs, which were both as expected.

It also excludes net benefits from dispositions, benefits from the Tax Cuts Jobs act, and benefit from a reduction to a previously recorded product recall reserve. A full reconciliation of adjusted EPS can be found in our investor supplement.

Adjusted segment margin was 14.4% in the quarter, a 210 basis point improvement over last year, primarily driven by incremental margin on increased volume. Bookings increased 13% to $2 billion.

This increase is comprised of 8% organic growth and acquisition growth of 7%, partially offset by a 3% impact from dispositions and reflect strong growth in Engineered Systems, Fluids and Energy. Book-to-bill finished at 0.98. Overall, our backlog increased 15% to $1.2 billion. On an organic basis, backlog increased 10%.

Adjusted free cash flow was strong, at $303 million in the quarter, up 26% over last year. For the full year, we generated $703 million of adjusted free cash flow, representing 9% of revenue.

While our fourth quarter was strong, we fell short of our full year plan, primarily a result of robust December shipments, which increased receivables in the month. Overall, we are pleased with the progress we have made on working capital this year. Working capital as a percent of revenue was 16.4%, down 280 basis points from last year.

Now turning to slide 4; organic growth was broad-based. Engineered Systems grew 8%, driven by solid activity across both platforms. Fluids Organic revenue increased 4%, principally driven by strong activity in our industrial Pumps and pharma and hygienic businesses. Refrigeration and Food Equipment increased 1% and Energy grew 23% organically.

As seen on the chart, total acquisition growth was primarily driven by 20% growth in Fluids. Now on slide 5; Engineered Systems revenue of $667 million was up 8% organically, reflecting broad-based growth. Adjusted earnings increased 9% over the prior year and adjusted margin was 15.7%, representing a 20 basis point improvement.

These results primarily reflect volume leverage, partially offset by some material cost inflation. Our Printing and Identification platform revenue increased 3% organically, driven by continued solid activity in our marking and coding business.

In the Industrial platform, revenue increased 12% organically, reflecting strong shipments in Waste Handling and robust activity in our vehicle service equipment businesses. Bookings increased 6% overall, including organic bookings growth of 9%. Organic growth reflects solid activity across the segment.

Book-to-bill was 1.04 for printing and identification, only 1.0 for industrials due to very strong shipments, and 1.02 overall. Now on slide 6; Fluids revenue increased 26% to $610 million, including acquisition growth of 20% and 4% organic growth.

Organic growth was primarily driven by strong performances in our industrial pump and hygienic and pharma platforms. Adjusted earnings increased 61%, largely driven by volume growth, including acquisitions and productivity gains, especially at retail fueling.

Volume leverage and ongoing retail fueling integration drove an adjusted margin improvement of 320 basis points, up to 15.2%. Of note, we have recently begun setting up pre-production runs in advance of consolidating retail fueling production facilities in Europe.

This consolidation and others in retail fueling, will greatly improve margin of this business going forward. Bookings grew 34%, including 9% organic growth. Organic bookings growth was most prevalent in our Pumps and hygienic and pharma platforms. Book-to-bill was 1.01.

Now let's turn to slide 7; Refrigeration and Food Equipment's revenue of $377 million included organic growth of 1%. The organic increase was largely driven by the expected strong activity in our can-shaping business within Food Equipment.

Refrigeration results reflected the anticipated fourth quarter softness in our retail refrigeration markets, as well as some customer rationalization. Adjusted earnings increased 34% from the prior year and adjusted margin expanded 300 basis points. These results primarily reflect the favorable business mix and significant productivity improvements.

Bookings decreased 3% organically, largely due to reflecting tough comps in our retail refrigeration business. Certain customers had ordered ahead of regulatory changes that went into effect in early 2017, which had the effect of softening back half in Q4 trends. Book-to-bill was 0.85.

Now moving to slide 8; Energy revenue increased 24% to $364 million, reflecting growth in the U.S. rig count and increased well completion activity, include continued solid results in bearing and compression, which grew 3%. Adjusted earnings were $49 million and adjusted segment margin was 13.4%, both significantly improved over last year.

These results were largely driven by strong volume growth. Bookings were up 18% year-over-year. Book-to-bill finished at 0.98. As Bob mentioned, our Wellsite businesses had a strong quarter, with 31% organic growth and grew 34% organically for the full year.

Further, we had made significant progress on the spend and fully expect to complete the transaction in May. We expect our end markets to continue to improve, and are excited about our prospects as an independent company.

Now going to the overview slide; number 9; our fourth quarter corporate expense included $16 million of right-sizing and other costs and $14 million of Wellsite related separation costs. Excluding these costs, corporate expense was $35 million, a little higher than expected. Interest expense was $35 million.

Our fourth quarter tax rate, included a benefit of $51 million from the enactment of the Tax Cuts and Jobs act. The benefit was primarily derived from the revaluation of deferred tax liabilities, offset in part, by a U.S. tax charge for deemed repatriation of foreign earnings.

Excluding the impact of the tax act and other discrete benefits of $10 million, our fourth quarter effective tax rate was 24.1%. This rate reflects a favorable mix of geographic earnings. For the full year, the effective tax rate was 27.1%.

For the fourth quarter, we repurchased 1.1 million shares for $105 million, as part of our previously announced $1 billion repurchase plan. We expect to complete the plan later in 2018, utilizing the dividend received from Wellsite. Moving on to slide 10; please note our 2018 EPS guidance is presented on an adjusted basis.

Starting this year, we will be adjusting for acquisition related amortization and right-sizing costs and Wellsite separation costs as incurred. Acquisition related amortization was $0.86 in 2017, and is expected to be $0.93 in 2018. The delta between the years is primarily driven by changes in the tax rate.

Moving to the guide; we expect 2018 total revenue to increase 3% to 5%. Within this forecast, organic revenue growth is forecasted to be 5% to 7%. FX should add about 1%, and dispositions are expected to have a 3% impact. All segments are expected to have solid organic growth. The specific rates could be seen on the slide.

Our forecast for corporate expense is $122 million and interest expense is expected to be about $130 million. The tax rate is forecasted to be 22% and 23%, four to five points lower than the normalized 2017 rate. This improvement is driven by the tax act.

Our forecast for CapEx is 2.4% of revenue and full year free cash flow is expected to be between 10% and 11% of revenue. Further, we expect adjusted segment margin to improve about 110 basis points over 2017 to approximately 15.3%. In summary, we expect full year EPS to be $5.73 to $5.93.

This represents an increase of 19% over 2017 on an adjusted basis at the midpoint. Our guidance does not include any 2018 costs related to the Wellsite separation. With that, I will turn the call back over to Bob, for some final comments..

Thanks Brad. As expected, 2017 proved to be an exceptionally busy year for Dover. During that time, we have remained highly focused on the three year goals we shared at our Investor Day in June.

For the period of 2017 through 2019, we communicated our targets to be 4% to 6% organic growth on an annual basis and cumulative adjusted margin expansion of 350 to 450 basis points. Although we know, there is still much to be done, I am pleased with the progress we made in 2017.

On the revenue side, we performed very well against the three year plan, generating 8% organic growth. Every segment hit their organic revenue plan. I would also plan to like out, that the businesses that propelled our growth in 2017 remained strong in 2018.

Namely, marking and coding, digital printing, and Waste Handling are all set up to have a strong year within Engineered Systems. In Fluids, we expect another year of strong growth in our Pumps and hygienic and pharma businesses.

Refrigeration and Food Equipment should once again deliver steady growth, and our Energy businesses are well positioned for double digit growth. Looking forward, we expect E&P related activity to be slow in the first half with tough comps, driven by the compliance date delay we have previously discussed.

We also expect retail refrigeration's first half to be impacted by tough comps related to last year's strong shipments in advance of regulatory changes. We are forecasting organic growth of 5% to 7% in 2018, a full point above the target in our three year plan, and we are confident we will deliver.

In 2017, adjusted segment margin improved more than 150 basis points, and we are on pace towards our three year target range. With respect to margins; in Engineered Systems, we fell a little short of our 2017 target, primarily due to significant material cost inflation.

We feel better about price costs as we enter 2018 and are also forecasting reduced investment as compared to a heavy investment year in 2017. In Fluids, commercial excellence programs, productivity, and our retail fueling integration have been and will remain the main drivers of margin enhancement.

Refrigeration and Food Equipments margin grew nicely in 2017 on improved productivity, especially within retail refrigeration, and we expect further progress in 2018. And finally, Energy's strong margin growth is primarily as the result of volume leverage, which we expect to continue in 2018.

In total, we expect more than 100 basis points of margin improvement in 2018, and our teams are aligned around achieving this goal. In closing, I feel that Dover is exceptionally well positioned in 2018. Our markets are healthy, and we have tailwinds from U.S. tax reforms and our right-sizing initiatives.

We expect to deliver a very strong year in terms of EPS growth, and will remain disciplined with respect to capital allocation. We will return cash to shareholders by completing our $1 billion share repurchase, and by raising our dividend for the 62nd straight year.

And we will continue to expand and enhance our platforms through margin accretive bolt-on acquisitions, and investing in organic growth. Now Paul, let's take some questions..

Thanks Bob. Before we take the first question, I'd just like to remind the listeners, if you can limit yourselves to one question with a follow-up, we have a lot of people in queue, and we will be able to hear more questions.

So with that Crystal, if we could have the first question?.

[Operator Instructions]. And your first question comes from the line of Andrew Obin with Bank of America..

Good morning..

Good morning Andrew..

Just a question; earlier in the year, you highlighted smaller acquisitions, something you haven't done before.

Can you just comment why all of a sudden, you are putting out press releases on these smaller deals and brought on capital allocation going forward, given Wellsite, and now that we have visibility on taxes, how should we think about capital allocation going forward?.

So your first question about press releases, is that --.

Yeah.

You are highlighting smaller deals, which I don't think you have done in the past?.

We just thought they were important to announce Andrew. I mean, there is nothing magical about it..

And how should we think about capital allocation going forward?.

Let's stay first with the share repurchase program that we announced in the fourth quarter, and I think we will have the bulk of that completed by the time we complete the spin in May of Wellsite. We sit here today.

I do not have anything significant in our acquisition pipeline, that we would expect to close on, in the first five or six months of 2018. If 2018 does prove to be a light year with respect to M&A activity, I think it's very reasonable to expect the board and I to have further discussions around share repurchases for the second half..

Terrific.

And just a follow-up question on revenue outlook; lot of companies sort of don't seem to indicate impact of tax reform on demand in their revenue outlook? Where do you guys stand about potential upside to revenue from the tax reform?.

Yeah, it's not in our guide. I think I am probably giving a simpler response that you have heard or will hear during this earnings season from other capital good manufacturers. When you look around the Dover portfolio, about 30% of our revenue was recurring.

The remaining 70% -- Andrew, I would tell you that about 80% of that remaining 70% is either capital goods or components we manufacture that go into capital goods. And a significant percentage of that 80% is U.S. based.

In fact, I think our earnings split for 2017 was 60% domestic and 40% non-domestic, am I right on that number?.

That's close. Right..

And I think -- we will watch two or three areas for a pick-up in capital goods activity that could be a response to the tax act, and we will see it. And the industrial platform of Engineered Systems, I think we will see it in retail fueling, and perhaps as well in refrigeration, especially the Hillphoenix and Anthony business..

Thanks a lot Bob..

Yes..

Our next question comes from the line of Steve Winoker with UBS..

Good morning. This is Chris on for Steve. Just wanted to kind of get a little bit more color on refrigeration.

So could you provide some color on the split of the mix versus productivity in the 300 basis points of adjusted margin expansion? And with regard to that, how far along you think you are in adjusting the model? And the factory performance there, and then for the year kind of going into next year, where do you think margins in region like -- what's the optimal kind of organic growth rate, within that 3% to 4% side?.

So I don't have the detail on the margin improvement question you've asked. I would say, the lion's share of the margin improvement is productivity initiatives. But I can't give you specific numbers or specific percentage. But productivity has been a big part of it.

But we have also been -- this business was probably earlier than some of our other businesses in 2017 to push some price increases through, as a result of the material inflation. I think that helped. But we have also done a fair amount, sort of around the edges.

Nothing major, but fair amount of work around the edges to exit some product areas that I would just label it as underperforming historically and coming to a conclusion that we weren't able to improve the margins to where we want it to be. And I don't know what that number is, I don't remember that number.

But could be as much as $40 million of revenue in 2017 that we exited..

And another $40 million to $50 million in 2018..

In 2018 that we have exited, just because we didn't like the margin profile..

Okay. And then, just quickly on just the EMV adoption within retail skewing.

How much of that was full dispenser replacement versus just the payment?.

I don't have that data. In 2017, the bulk of our EMV activity as we have reported in the past, was in the first half of the year. We continue to see some activity in the second half, but nowhere near what we saw in the first half. We are taking a pretty cautious approach to the 2018 guide.

I would say that, the 2018 guide has less EMV activity, pure EMV activity in the guide than we actually experienced in 2017, and I will repeat myself, I think that's cautious and conservative.

We do believe that the EMV activity will begin to pick up in the second half, and we will provide further cover on that activity on the April and the July call, and my hope is, is that it gives us an opportunity to raise our guide as we move through the year..

Thank you..

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

Thank you. Good day everyone..

Good day Jeff..

First question Bob, actually just it might be multi-part, but this goes on kind on some of the guidance dynamics here.

First, you stated that the guidance excludes Wellsite one-off costs, but I am wondering does it kind of fully reflect the total cost of what we will have, when there is two companies? In other words, just the restructuring you are doing, getting at what we -- for a lack of a better term, maybe call it the stranded costs that would be graded when you expanded [ph] the new company? And then, just secondly on the guidance too, I was wondering that $0.28 to $0.26 for commercial and product investment, never really seen that called out before, I certainly don't recollect.

That's a big number.

What actually is that?.

Okay, well let me deal with the first question. The right-sizing activity in the fourth quarter -- let me give you a number there as well. I think our right-sizing in the fourth quarter Brad, were what, $45 million, $46 million, something like that, and there is some carryover that's in our guide for 2018, for right-sizing costs.

I think the number is about $11 million Jeff, and the bulk of that -- I am not going to say 100% of it, but I think the bulk of that will occur in the first quarter.

And then on top of that, we have another $12 million -- $10 million or $12 million of restructuring costs planned for 2018, that I would label is just normal on ordinary recurring type of activity that you have seen us tackle in the past few years.

With respect to the final separation of Wellsite from Dover, there is going to be some stranded costs that we will have to deal with. We will deal with it at the time of the spin or slightly thereafter. But it is pretty modest, Jeff.

Brad, is it $4 million, $3 million?.

As reflective of the activities we have been taking, we have narrowed it down to about $3 million to $5 million. Still looking at more ways to reduce the stranded costs inside Dover. Jeff, keep in mind that, when Wellsite goes, the easiest way to think about this is, so does all the segment of DE Energy, the segment costs.

Soma and his team and the costs they incur at the segment level, go with the spin. So that in essence is taken care of through the spin activity. They will have to add incremental costs above that number, as a new public company, we say 35. But in reality, it's a smaller piece, because the segment already is staffed up than 35. I hope that helps..

That does help.

And then on that -- in the bridge item, that commercial and product investment buckets there?.

That may be a change with respect to our external communication. But Jeff, I wouldn't look at it as something new within Dover. There is a fair amount of investment we are looking at in 2018 for -- well I call it commercial facing activity --.

Including digital..

Including our digital activity. And we do have a fair amount of projects around Dover in 2018 for productivity, which we have a tendency to support, not only with people assigned to productivity, but with capital. But I wouldn't look at it as a different activity, it is a slight change in how we present it..

Okay. And then just one other one, and I will move on. Just back to Energy; so it looks like we -- I am assuming this margin, which is nice year-over-year but down sequentially, reflects some moderation in actually drilling activity, and we are starting to get the ducks quacking, so to speak, confusion activities..

I wish the duck for quacking more Jeff..

Yeah.

Can you just kind of walk us through what's happening?.

I would tell you that, we probably saw two things in the fourth quarter within Energy, within Wellsite, that were a little bit different than we expected going into the quarter. Drilling activity was a bit reduced, especially in November and December, relative to our early in the quarter expectations.

And I think the best market indicator there to sort of coalesce with is -- the rig count activity was, I would label it as a bit flattish in the fourth quarter, and we expected a little bit more growth. The second item is with respect to well completion activity.

We did not see the pull-through in our rod lift business to the degree we thought we would. And on the flipside, we saw more ESP pull-through than we had planned, and there is a margin difference between those two technology offerings, Jeff.

ESP operating margins are probably five to six points less than rod lift, and I would say, the overall cover with many of our customers -- we heard many comments that my CapEx budget is done for the year during November and the early part of December.

To provide a little bit more cover on that, I would tell you that, activity here in January has been quite strong. Rig count activity has been up, and in fact the rig count increase -- I think it was last week, 15, 16, 17 unit increase last week, I believe was the largest weekly increase in rigs in this recent upturn.

But the drilling activity is picking up, it's a little bit ahead of our plan for January, and our artificial lift business is on plan..

Thank you..

Our next question comes from the line of Steve Tusa with JPMorgan..

Hey guys, good morning..

Good morning Steve..

Hey, what's the -- the tax rate on the amortization add-back looks a little bit higher than what you guys are kind of guiding to for the go forward, what's the difference there?.

We are using a tax rate based on the jurisdiction of which the amortization -- the statutory rate in the jurisdiction of which that amortization is incurred. In other words, you think about it, we did acquisitions in different parts of the globe, and we are applying this statutory rate on a blended basis across each of those..

Okay.

So that's not going to change with tax reform?.

No..

Okay. And then, free cash flow, still pretty solid, but a little bit light of what we were expecting. It looks like there was, we don't have the details yet, but perhaps some working capital.

Can you just talk about what your assumptions are there going forward? Is this just a little bit of a working capital build on the back of better volumes? I think you guided to 11 or 13 or something like that, so just curious on the free cash flow front?.

No, no, no. Don't take the 13%. We got into 10% to 11%..

No you had -- I think you had -- we were expecting something a little bit higher this year, specifically?.

Actually, I was a little disappointed with the outcome for the year on our cash flow. It was a bit disappointing to not hit the 10% number Steve. But two things, you sort of tried give me an answer that working capital maybe was going up. Actually, let me tell you, working capital for Dover in 2017, we lowered it a 140 basis points year-over-year.

What we did see in the fourth quarter was December revenue was much stronger than we would normally anticipate when you look at past years. And we typically get a little bit, I would call it receivable liquidation during December, and with the strong revenue in December, that did not happen.

I think for the most part, I would tell you that cash collections were not really the problem, even though we didn't liquidate draw-down receivables in December. But I think we had a little bit more of an outflow in a couple of areas than we had expected.

CapEx spending was a little bit higher in the fourth quarter than we had planned, and I think we would tell you now, that maybe our -- not maybe, our outflow on tax payments could have been lower than the payment we make. And I think even making those adjustments would get us really close to 10% but not over..

Okay.

And then lastly, any price costs, headwinds in your guidance for 2018, steel and like that?.

That's a good question..

Thanks for that..

Our material cost dynamic versus price in 2017, we actually had a negative headwind of almost $15 million in 2017. The bulk of that was -- I think all of it was in the first three quarters of last year. As we look at 2018, given the current material costs and the pricing actions we took in the second half of 2017, we see that flipping.

We see a $13 million to $15 million tailwind in our guide on material versus price..

That's all-in bulk price..

Yeah, that's all in..

Great. Okay. Thanks guys..

Yes..

Our next question comes from the line of Deane Dray with RBC Capital Markets..

Thank you. Good morning everyone..

Good morning Deane..

Hey Bob, [indiscernible] expand on the comment in refrigeration when you said you saw and had some customer rationalization.

Just kind of expand what was going on there and maybe size the impact if you could?.

Okay. So it was actually happening throughout the year. This wasn't just a fourth quarter activity. I think in the first quarter of last year, we said no to about $20 million worth of business within retail refrigeration that we just weren't happy with the margins on.

And getting the feel like we could improve them to the point where it would be constructive to our margin targets for this segment.

In the fourth quarter we actually divested, was it in -- yeah, it was in the fourth quarter we divested a small business, glassdoor business in China that we have been working very diligently to improve the margins and grow it and just have not been successful. So we divested it in the end of fourth quarter.

And I also believe in the fourth quarter, we shut down our aftermarket service business in Canada, that I don't remember the revenue number there Brad, but it was about $10 million. And I believe, the glassdoor business in China, Deane, was also about $10 million. A little bit here to a little bit there, but they were the three major items.

But all in total, it was about $40 million..

And is that -- do you have more in store for the first quarter? Or has that run its course?.

I would say that it has run its course..

Okay.

And then on the Energy side, just last question for me, can you clarify whether some of the uptick in the Energy was the recovery from the hurricane dislocations that you saw in the third quarter, it was -- I think you had sized it like $0.04 in the third quarter, did that all get recouped here in the fourth quarter?.

Okay. So the $0.04, in my recalling, the $0.04 was a preliminary number that I provided, I think in mid-September. That was sort of the risk we were seeing at the time.

I think when we actually closed the third quarter, the guys, the business teams had done a tremendous job in closing the gap, and I believe we felt -- at the end of the quarter, we were only a penny off, because of the hurricane.

So I wouldn't label much activity in the fourth quarter as being a carryover from the storm interruption in the third quarter..

Got it. Thank you..

[Operator Instructions]. And your next question comes from the line of Scott Davis with Melius Research..

Hi. Good morning guys..

Good morning Scott..

Can we just refresh our memories a little bit or refresh my memory I should say, on Pumps.

How much of that business goes for distribution versus direct? And I guess part of the question I am getting at is that, the growth you saw, is there some restocking going on that, folks want to make sure they are geared up for higher operating rates?.

No. So within Pumps, and I am including our PSG business our [indiscernible] business and our hygienic and pharma. Maybe 60% of it is through distribution, the balance of it being direct to the end user or an integrator.

No, your question about restocking, I actually believe that the bulk of that restocking activity, we saw in the second and third quarter. I think what we saw in the fourth quarter and what we expect here in 2018 is true end market pull..

Right. Okay, that's helpful. And then I don't think you said this, and if you did, excuse me.

But can you just give us a bit of a walk around in the world, I mean, where you saw strengths and weaknesses globally versus your model?.

For the fourth quarter?.

Yeah. For the fourth quarter..

I would say that China and the U.S. market activity was a bit stronger than we anticipated. In fact Scott, it was interesting, organic growth in the U.S. in the fourth quarter was a little better than 10%. We saw good organic growth, double digit in China, and in Europe, we saw flat. It was relatively flat versus the fourth quarter of 2016.

But I would give our business teams a little color on that, by pointing out that the fourth quarter of 2016, we had some pretty healthy, I call them project shipments in Europe in the fourth quarter of 2016. But almost 11% of the U.S. was a little bit stronger than we anticipated..

Interesting. Okay. Very good. Thank you. I will pass it on..

Yes..

Our next question comes from the line of John Inch of Deutsche Bank..

Hi everyone..

Good morning John..

Hi Bob, and Brad and Paul. I am coming up to about $4 on Dover Remainco under the old accounting. So excluding -- or including the amortization, excluding Wellsite.

Is that -- Brad, is that about the number? And if so, in terms of your guidance for 2018, what kind of a growth rate would that represent Trying to understand sort of how you are guiding your EPS or your thought process around EPS kind of on the apples-to-apples basis, ex-Wellsite?.

Yeah. Well I guess I would start by saying, you can anticipate that we will provide clarity on that in the April call, as we get closer to the spin date in May. I would say though, keep in mind, that as Wellsite comes out, the two things I would point out, that the model you would expect when we get to April.

One is, is that our forecast or our guidance for 2018, does not include the current thinking around the buyback that we will do, once we receive the cash --.

The dividend..

The dividend. So the stock will be bought back in that May timeframe, once we receive the dividend. And then secondly, just to give you a little bit of a sense of what direction it goes in.

Wellsite is mostly a U.S.-based earner and so the tax rate for us will probably move closer to the low end of the range and they will be slightly above the range we gave. And so that will have implications to your modeling as well. That's probably about all I would comment on at this point, put aside, waiting for April..

All right.

So Wellsite, just to recap, when you said Wellsite, it's going to have a higher tax rate, and the Remainco businesses are going to have a lower tax rate, I am sorry, is that what you said?.

That's what I said..

In the range? Okay..

I'd say on the amortization line, because we now start to report that way. If you think about the amortization, we said $0.93 -- amortization related to Wellsite within that $0.93 is roughly $0.23, $0.24..

Okay. Good, that's helpful. In the quarter, just a good look at the quarter for a second, I think your restructuring that you actually include, so not the exclusionary stuff was about $2 million.

How did that compare with your plan and what is the plan for 2018? I think you maybe -- said it Bob, but I still can't quite understand what's kind of included and excluded? And didn't you say that there was, we are going to do $18 million to $20 million of restructuring in 2017?.

Yeah, we had said that around $18 million to $20 million, that's kind of normal for a given year. I think the fourth quarter was a little lighter, to your point. Your number is not that far off for the quarter and for the year, we did about $13 million or $14 million, so lighter compared to the original forecast that we gave.

In 2018, we have $11 million of right-sizing carryover, so again $45 million, $46 million in the fourth quarter, $11 million in the first quarter, maybe just a little bit falls into the second quarter, but most of that in the first quarter.

And then we had built in to our guidance, what I'd call normal restructuring, things that we do every year, we have been doing for five years, of around $10 million..

Okay. So and --.

Figure all in, right-sizing and restructuring in 2018 of $21 million..

Of which we are excluding the $11 million, is that right?.

Yeah..

And you are keeping the $10 million? The reason that's $10 million versus $18 million to $20 million, is because Wellsites is not there, is that the biggest chunk of it?.

Well, I would say, look the right-sizing has captured a lot of things, but as I -- I think we mentioned earlier. I don't think we are done sitting here today. I mean, Bob can comment on this. I mean, I am not for a moment thinking that, we will come in at $21 million. I think that there is likelihood you could see that number come up --.

Should be higher..

Incremental, not dramatically different, but incrementally higher, as we continue to work through and get closer to the spin-off date.

Do you want to add anything on that Bob?.

No. And the $12 million, would I label as normal and ordinary type of restructuring? John, you have to appreciate, that we know what those projects are. As we roll through the first and second quarter, I fully expect the business team leaders to identify other opportunities, and if it makes sense, we will do it..

And then just lastly Bob, refrigeration, when you were transitioning your ops to smaller lot sizes and bulking the sort of more flexible production systems if you will, did that completely through [ph] so that refrigeration margins today are going to be a function of volume and obviously associated pricing mix or is there still work to do around that front?.

No. I think most of that work around -- that we tackled around the reduction of lot sizes is complete. Now, don't take that statement as meaning that there aren't additional productivity projects that we can tackle this year and next year, because there are.

And the fourth quarter, we actually -- in our case business, we actually shut down one of the case factories and have consolidated all of case manufacturing into one factory, which is a byproduct, and the end result of many of the productivity initiatives we have been working on over the last two years, just to -- I'd tell it, react to the difference in the lot sizes and some of the improvements we have made in process a little.

But it's a -- the team there did a great job in 2017, and I know that you are very-very [indiscernible] excited about expanding that great job again in 2018..

And lastly, sorry, core variable margin contribution, 19, based on your guide, ex-Wellsite, what do you think that is, Brad?.

I don't have that number..

No, but it has been in the -- you historically had this 30%-35% number?.

You know, I'd say it's a little bit higher than that. I think that with all the productivity -- and again, I am doing this on an adjusted basis, adjusted to adjusted year-over-year..

Yeah. That's why I am asking..

It's a little bit higher than that. I'd say, it's closer to 38%, 39%..

Okay, awesome. Thank you very much..

Yes..

Thanks Jeff..

Our last question comes from the line of Andrew Kaplowitz with Citigroup..

Hey guys..

Good morning Andrew..

Bob, I just want to go back to refrigeration for a second. Maybe just talk about your confidence level in growing that business 3% to 4% in 2018. Obviously, we have seen the book-to-bill relatively weak a little, last two quarters.

But do you have the visibility towards bookings growth in the first half of the year, and should we thinking that 2018 is basically back half loaded a bit on the easier comparisons in the second half of the year?.

Okay. Well on comps, it may appear to be back-end loaded.

I would say -- our expectation for 2018 for the food retail business, this is Hillphoenix and Anthony, I think it's going to return to the more traditional seasonal pattern that we have seen over the last seven, eight or 10 years, and that would be that the second quarter and the third quarter are the ramp and the heavy build seasons, with the first quarter and the fourth quarter being, I'd call it, the shoulder seasons.

And that's quite different than what we experienced in 2017. The order rates that we are expecting in the first quarter to support our plan for the first quarter and our ramp for the second quarter, I can tell you that here in January, our order rates are on plan. So we actually feel rather confident with our target and our guide on refrigeration..

You still available Andy? I guess Andy is gone. Crystal, you're still there.

Is anybody there?.

Yes I am here..

Okay. Thanks..

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

Thanks Chris. So yeah, this concludes our conference call. As always, we thank you for your continued interest in Dover, and we look forward to speaking with you again next quarter. Have a good day. Bye..

Thank you. That concludes today's fourth quarter 2017 Dover earnings conference call. You may now disconnect your lines at this time and have a wonderful day..