Good morning and welcome to Dover's Fourth Quarter 2018 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President of Corporate Development and Investor Relations.

After the speakers' 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. Andrey Galiuk. Mr. Galiuk, please go ahead, sir..

Thank you, Maria. Good morning and welcome to Dover's fourth quarter and full-year 2018 earnings call. We'll begin with comments from Rich and Brad and will then open the call for questions. This call will be available for playback through February '19 and the audio portion of this call will be archived in our website for three months.

The replay telephone number is 800-585-8367. While accessing the playback, you'll need to supply the following access code 6883448. Dover provides non-GAAP information such as adjusted EBITDA results and guidance.

Reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website dovercorporation.com.

Our comments today may contain forward-looking statements that are inherently subject to uncertainties, we caution everyone to be guided in their analysis of Dover by referring to our from 10-K for a list of factor that could cause our results to differ from those anticipated in any forward-looking statements.

Also we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I'd like to turn this call over to Rich..

Thanks, Andrey, and good morning everyone from balmy Chicago. Let's gets started on Slide 3.

Q4 again organic revenue growth was up 6.2% for the quarter and solid demand trends and engineering systems and at exceptionally strong performance in our fluid segment more than offset the continued weak demand environment in Refrigeration & Food Equipment particularly and can making equipment in Food Retail.

Thus adjusted Q4 earnings were up 17% driven by top line growth, volume leverage and cost actions initiated in Q3. Adjusted EPS had $1.43 per share was up 25% inclusive of $0.08 of favorable impact from tax.

As we discussed at the end of Q3, we had some heavy lifting to do to offset the Q4 forecast for trading environment in Refrigeration & Food Equipment. The organization made a determined effort to convert its backlogs crystallizes its cost-saving targets, and focus on cash conversion with good effect.

Despite the excellent shipping performance through Q4 and many of our businesses bookings remained solid at the end of the quarter, posting a book-to-bill ratio above one, which were broad-based across the portfolio.

Our SG&A rightsizing initiative is largely complete and during the quarter we began the first projects of our footprint rationalization plan, particularly with the three to one production sites rationalization in Unified Brands, which is underway.

In Q4, we have taken our initial restructuring charge of $5 million as a result of the announced footprint consolidation efforts, which we forecast to deliver $4 million into 2019 an annualized run rate savings of $18 million.

Finally, on the inorganic growth front, last Friday, we completed the acquisition of Belanger, a leading car wash equipment manufacturer, which we announced earlier in the month.

Belanger meets all of the criteria for inorganic investment in terms of market attractiveness, execution profile and return on invested capital that we laid out at our analyst day in September.

It's been a busy quarter for the Company, I’m pleased that were able to deliver solid top line growth and generate significant cash flow from operations while concurrently delivering on our productivity initiatives now since September. So that’s the balance of the opening comments. From here, I will pass it on to Brad..

Thanks, Rich. Good morning, everyone. Let’s go through the details starting on Slide 4. As mentioned, our results for the quarter were driven by strong demand in Engineered Systems and Fluids, solid margin conversion on revenue growth and cost actions.

Adjusted segment EBIT increased 9% to 285 million and adjusted margin was 15.7%, an increase of 80 basis points. This performance reflected strong growth in conversion in Engineered Systems and improved performance in Fluids, partially offset by lower volume in Refrigeration & Food Equipment. Adjusted segment EBITDA was 352 million.

Adjusted earnings were 211 million in the quarter and adjusted diluted EPS was a $43, an increase of 25% over last year. The EPS increase was supported by share repurchases and a lower tax rate. Full year 2018 results followed the same narrative as the fourth quarter.

Results were largely driven by strong growth across our Engineered Systems and Fluids segments partially offset by lower volume within our Refrigeration & Food Equipment segments. Adjusted full year 2018 segment EBIT increased 4% to just over 1 billion.

Adjusted EBIT margin was 14.8%, an increase of 30 basis points driven by stronger conversion on revenue growth and by the impact of our margin improvement plan. The effective tax rate for the full year was 21.4% when normalized for discrete tax benefits, excluding the additional Tax Act regulatory guidance covered by SAB 118. Now turning to Slide 5.

Let’s get into a little bit more detail on revenue and bookings results in the quarter. Fourth quarter revenue grew by 3.2% to 1.8 billion. Organic growth in the quarter was 6.2% despite headwinds in Refrigeration & Food Equipment. The impact from FX and dispositions added headwinds of about 2% and 1% respectively.

From a segment perspective, Engineered Systems grew 30 million or 4.3% organically and Fluids grew a 118 million or 17.2% organically on broad-based activity across the segments. Delayed shipments and can-shaping equipment and weak retail refrigeration markets drove a 39 million or 10.2% organic decline in Refrigeration & Food Equipments revenue.

The majority of which is due the expected year-over-year declines at Belvac. In the fourth quarter, our retail refrigeration business posted its lowest rate of revenue decline in 2018 at approximately 3%. Bookings increased 8% overall.

Organic growth was strong at 10% contributing to an increase in backlog both over the third quarter of 2018 and the fourth quarter of 2017. Of note Engineered Systems and Fluids organic bookings grew 86 million and 54 million respectively reflecting broad-based market demand.

Refrigeration & Food Equipment segments bookings grew 25 million organically and approved orders at retail refrigeration and exceeded revenue by 14 million in the quarter. From a geographic perspective, the U.S.

our largest market grew 6% organically where broad-based growth in Engineered Systems and Fluids was partially offset by retail refrigeration, which is primarily a domestic business. Europe was up 10% organically with strong performance across all segments and Asia was flat.

Within Asia, China grew 6% organically driven by strong growth in our food and segment. Finally book-to-bill finished at 1.02, reflecting strong orders across our segments including Refrigeration & Food Equipment. Let's go to the earnings bridge now on Slide 6.

Starting on the top, Engineered Systems adjusted segment EBITDA improved 11 million, largely driven by solid conversion on broad-based revenue growth across the segments, more than offsetting headwinds from FX and dispositions.

Fluids EBITDA growth of 32 million reflects a combination of robust growth better execution in retail fueling as well as strong conversion on volume in other businesses. The 22 million decline in refrigeration Food Equipment reflects lower volume and negative business mix particularly in our can making and retail refrigeration businesses.

Additionally, our margin improvement plan began to deliver results with our SG&A initiative contributing 22 million of savings to Q4 results.

Going to the bottom of the chart, adjusted earnings from continuing operations improved 31 million or 17%, primarily driven by higher segment earnings, lower interest and corporate costs, partially offset by higher taxes and increased earnings.

Now on Slide 7, free cash flow for the quarter was seasonally strong posting our highest quarterly cash flow for the year despite the strong revenue impact resulting in higher year-end receivables. The fourth quarter is traditionally our highest cash flow quarter.

Free cash flow for the year was 618 million or 8.8% of revenue within our guidance from our analyst day in September. Cash cost of 52 million associated with our restructuring initiatives negatively impacted cash flow in the year, excluding such non-recurring cash outlays, free cash flow was 9.6% of revenue Now let me turn back to Rich..

Thanks Brad. Let’s go on to Slide 9, Engineered Systems had a solid broad-based quarter top line organic growth of 4.3%. Incremental margin conversion in the quarter was excellent, driven by favorable mix and cost actions largely in the printing and IT platform despite a more modest top line growth rate in Q4.

The industrial platform perform well across the board as our CapEx levered businesses continue to operate in a constructive demand environment and all posting top line comparable revenue increases. Our ESG business continued to deliver strong results with a robust positive bookings trend building a runway to a solid forecasted performance for 2019.

OKI, DESTACO and TWG all finish the year contributing solid single digit growth and margin expansion and microwave products delivered as expected in a robust military spending environment. Going into 2019 bookings for engineering systems remained solid.

We expect the segment to contribute positively to both the top and bottom line despite the forecast is FX headwinds in our businesses that are material exposed to Europe predominantly marking margin digital printing and ESG.

The Fluid segment posted organic grommets growth of 17% for the quarter with the majority of the portfolio posting double-digit comparable growth rates. Incremental was margin was solid for the quarter as volume leverage and cost controls were able to offset the impact of favorable product and geographic mix.

Our pumps and process solutions businesses had an excellent quarter with incremental margin performance in MAG, Hydro and Precision Components in excess of 35% in the period as a result of volume leverage, mix pricing and cost control initiatives, outweighing input cost headwinds and tariff costs on imported components.

Fueling and transport posted exceptional top line performance for the quarter, as demand remained robust and were able to clear the backlog that's been built a result of our facility consolidations and DFS and OPW.

Margin conversion while improving sequentially is the largest opportunity performance improvement going into 2019, and we are targeting to progressively track to the margin objectives that we laid out in September through the year.

Refrigeration & Food Equipment revenue decline in the fourth quarter with the segment organic revenue down 10%, we expected another difficult quarter at Belvac and in retail refrigeration results came in line with forecasts, margin performance in the quarter was negatively impacted by volume in refrigeration and mix at Belvac.

The segment also incurred transitory costs associated with product rationalization programs in refrigeration and preparation for our automation efforts to be built out in 2019. Positively, retail refrigeration bookings were up for the first time in six quarter during the period as project activity has increased.

As we presented in September, we've begun in earnest to address our footprint and productivity actions by starting in our Unified Brands business.

As it is the clearest path to improving margins in the segments, we are in the planning and preparation phase for our automation and production consolidation programs and refrigeration and have committed 2019 capital spending to fund these projects.

We're cautiously optimistic for improved revenue performance in 2019 for the segment based on our initial 2019 order backlog and retail refrigeration and according activity as you see in our full year guidance. So let’s move on to the guidance.

Our full year guidance is made up of the following, 2% to 4% organic revenue growth, 2% to 3% total revenue growth positively impacted by acquisitions of 1% offset by foreign exchange of 2%. We expect the FX impact to be concentrated from the first half of the year. You can see the tax rate. I'm going to deal with CapEx on the following slide.

The range and free cash flow conversion reflects the announced restructuring programs that there is a back-up slide on and adjusted EPS, EPS guidance of 565 to 585. Guidance does not include unannounced footprint actions to be taken in 2018. So let's go and take a look at the EPS bridge in the following slide.

As a starting point for 2018, EPS is normalized for the full year discrete tax items as you can see at far left. Contributions for the 2019 EPS guidance were as follows. $0.39 from incremental SG&A rightsizing carried into 2019 as well as the impact for announced footprint actions.

We have included supplemental slides in the backup for you to take a look at.

$0.08 per share from the Belanger acquisitions, which we closed in January 25th, $0.19 to $0.39 of conversion of the revenue range and $0.15 from tax rate which is a negative as well as the share count reduction from 2018 repurchase program, it does not include any 2019 share repurchases leaving us to the EPS guidance.

The last slide is moving on to capital expenditure. CapEx is forecasted to increase in 2019, approximately 30% to 40%, driven by several significant projects. 26 million greenfield plant will support the growth of our colder connector business, which has an outstanding year and it's a business that we have targeted for investment.

The plant will become fully operational in 2020, and initial 15 million investment in automation and retail refrigeration to improve productivity and enable footprint consolidation, which is scheduled to come online progressively in the second half.

Excluding these large structural investments, CapEx is in line with historical averages between 2 and 2.5 of revenue despite significant investment in our digital initiatives.

To wrap-up, Dover enters 2019 with solid momentum as represented by our Q4 organic growth rates, solid order backlogs across most of the portfolio, and margin expansion potential driven them by volume and cost initiatives.

We are delivering on our September commitments for cost alignment and reinvestment in the drilled platforms, which I've included in the supplemental schedules. We believe we are well-positioned to deliver solid top line growth and strong double-digit EPS accretion in 2019.

Our guidance reflects a constructive demand environment, continued focus on margin improvement and rightsizing programs as well as disciplined deployment of capital underscored by the recent acquisition of Belanger. And that concludes the presentation and we will open to questions, Andrey..

Maria, we can open-up to the Q&A..

Thank you. And the floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Steve Tusa of JP Morgan..

Just curious, so CapEx going up quite a bit next year yet you are still guiding to kind of 8% to 12% of sales and free cash flow. Can you -- I know, there is some noise around restructuring this year and maybe obviously some working capital headwinds.

Can you maybe just help us kind of bridge the gap there and the other moving parts outside the CapEx?.

Sure, I think like Brad covered, we gave a, let's call it normalized cash flow for the cash impact of restructuring operations. So, maybe we're just under 10% for the year. And with the strong revenue growth in Q4, we had some amount of cash flow that was hung up in receivable.

So, if you take a look at next year, the revenue growth is not at that same kind of momentum, so we would unwind that Q4 revenue through cash flow. And quite frankly, it's not as if we’re performing at 100% in terms of cash conversions. So I’m making up that 30 million to 40 million over the year, we've got the ability to do it.

So, I don't think it's -- I know that we were forecasting to spend more for CapEx, we believe in the projects we’re doing it. But we don't think that, that spend on CapEx is negatively impact the cash flow target for 2019..

And then just quickly on product ID. I’m not sure if you've mentioned this in the prepared comments, but how orders there in the fourth quarter? And then, there was the smaller cap here to talk about some weakness in digital printing. I know you guys, digital printing is not, it's maybe not comparable across the board.

Are you guys seeing anything there with regards to trends globally and demand for what’s been a pretty strong growth business?.

Yes, I mean, look at digital printing in terms of its margin performance year-over-year did a fantastic job. But as you know, these are high dollar printers, so the revenue tends to be little bit lumpy.

It is reflected in our book-to-bill in printing, and ID is not so much the Markem-Imaje piece, it's more just the lumpiness of the orders, but our expectation for digital print for 2019 is to increase revenue..

I would just add that Markem-Imaje has been steady all year along at above one book-to-bill and so that business remains solid for us..

So I guess digital printing was the reason for kind of the weaker orders in the quarter, I think you said they were down?.

Yes, it's just a lumpiness of when which will be allowing us..

We will move on to Andrew Obin of Bank of America Merrill Lynch..

Just a question just to clear up sort of unannounced footprint consolidation, I assume its food refrigeration and automation actions related to it.

Can you expound on that? Can you just explain to us what that is?.

Necessarily, I mean, we're investing in retail refrigeration and automation that is going to progressively come online, so expand the capacity of the footprint in Richmond. So, it's not alluding to that necessarily. I mean that’s a project that is going to take more or less the whole year to get online..

And that's all we have announced in terms of food refrigeration right now..

The only thing we've announced in terms of -- that segment is the consolidation in United brands bringing the footprint from 3 to 1 which is underway..

And then the second question, just going back to cash flow this range of 8 to 12. Can you bracket what drives the range? And I remember at C&H cash was a big focus when you came in.

How are you changing the systems inside Dover to achieve that better cash flow in the long run?.

Dover's historical cash generation has not been pour by any stretch imagination. I think that what we did was wide in the range for cash generation, just to open-up business and recycling of the business, which is more revenue related and capital consumption from CapEx.

So at the end of the day, if you take a look at what was generated for full year of '18, we came slightly below 10%, if we normalize for the cash cost of the restructuring actions. Despite the fact that having CapEx up a little bit, we're getting little bit penalized in Q4 because of the fact that the growth rate was so robust.

So, you've got some amount of cash that's hung up in receivable. So, on one hand, we don't want to manage that cash number where to the extent that we are not taking orders and making deliveries because we prefer to have the operating profit quite frankly.

So, what we -- the way that we look at it here and should look at here is, it's a self liquidating balance sheet, right. We accommodate the negative impact of higher revenues. We're taking the earnings and we've just got to get really good at cycling our receivables and working on our payments, so just kind of the working capital point of it.

But on the other hand, it's not as if we can get quartered into 10% of revenue where we say wait a minute stop shipping, if you will..

That makes sense. The perception, I think, was that the Apergy business was a big cash generation and ex- Apergy I think was nice to see the cash is still very good..

Our next question comes from the line of Jeffrey Sprague of Vertical Research..

And just back to refrigeration, I mean I guess unannounced restructuring is not announced, but if the automation and refers increasing your capacity in Richmond, it certainly follows that we need to make some other moves at some point in that business I would think or you in fact see growth clearly picking-up where you are not as a situation or you have over capacity..

That demand levels that we forecasted for 2019, we will be over capacitized..

And just thinking about these orders, Rich, in refrigeration you're seeing now is the pricing on orders such that you know you feel better decent on the margins trajectory and refrigeration over the course of 2019?.

I'd like the pricing to be better is the honest answer, but we've modeled in kind exit pricing or current market conditions. One would hope, if demand was to accelerate in excess that what we've modeled in year that there would be some room for pricing.

But right now, I think that we've got a pretty cautious view about demand and pricing for retail refrigeration in '19..

And then just one other one, it'd never occur to me that Unified Brands that have been that big of restructuring opportunity, but is this something that you get executed fairly quickly here in the first half? Or it's just thrown out over some period of time?.

Don't look at the supplemental chart and say that's all unified brand, a piece of that is Unified Brands, but there's a variety of other smaller projects in there.

Unified Brands tends to be the one we're using as example because the footprint consolidation is quite large and we started that in Q4 and it's pretty much going to take us through the first half of 2019 to complete..

Our next question comes from the line of Andrew Kaplowitz of Citibank..

Richard, at your analyst day, you mentioned that DFS was finalizing a path to 15% to 17% margin. You mentioned in your third quarter call, but you’re happy would DFS' exit margin rates. It does look like marginal overall influence is quite good.

So how much has DFS already improved in margin? And has the improvement been faster than you expect?.

The DFS margin in Q4 was slightly below the exit rate of Q3, but that was entirely driven by geographic mix.

So, it's been sequentially getting better through 2018, and as I mentioned in my comments, one of the -- if you look the -- if you do the math on the incremental margin on the EPS bridge, you’re going to see at the lower end of the revenue side that it's pretty robust.

A lot of that is the non-reoccurrences some of the issues that we dealt with in 2018. I think the margin targets that we showed in 2019 September are real and were going to be tracking progressively to realizing those margins through 2019 under current demand scenarios..

That’s helpful, Rich. And then maybe you can breakdown a little more the 17% growth in fluids? I mean you talked about strength in pumps and process solutions.

The B&B impact in the core to pick up in the quarter and with the booking strength in the segment is it fair to say that there is relatively high confidence in the 3% to 4% growth forecast for 2019 given the back of that you have..

We like our exit growth rate and we like our book to Bill and that is reflected in what we’re expecting -- that we're putting out there for the guidance for the segment. As you know what we have what we can see is into Q2 at the present time.

So, we feel good were we are despite a lot of negativity in terms of sentiment about the demand environment for everything going into 2019. So we feel good about the forecast that we have out there. In terms of the growth rates, the fastest growing portion was DFS or Fluids or the Fluids business of the other retail fueling.

But have been said that, the balance the portfolio really grew well. We've commented before I think in Q2 and maybe to a lesser extent of Q3 on the MAG business which is very much project-related. That was a large contributor to the growth in the incremental margin also for the quarter..

Our next question comes from the line of Julian Mitchell of Barclays..

Maybe just the question around the capital deployment, I think you've noted that the assumptions for 2019 on EPS not embedded much in the way of extra buyback or overseeing any unannounced M&A.

So maybe update us on how you will see your capacity for capital deployment at least this year, even if you’re not giving us guidance on the buyback? And how you see the preference of acquisitions versus buybacks to use that capital?.

Sure, well, I think in terms of the hierarchy, it's the same as we are presented in September that we've got a bias for organic investment because that's what the returns are highest. And really the biggest change year-over-year is what we’re doing in terms of organic investment, which has reflected in the CapEx slide.

We just completed an acquisition or in inorganic investment in the car wash equipment business, we gave the criteria and what we're looking for in September in terms of margin expansion, execution risk and return on invested capital hurdles. That particular one meets all three so we feel quite good there.

We've got a reasonably good pipeline that we're taking a look at right now. And the size of that pipeline in terms of scale of those opportunities are more or less around where that Belanger acquisition.

So that's the kind of color, I can give you on whether well executed or not we use to say, but we're not going to sit on cash as we build up through the year..

And then my second question would be going back to the fluids business, again, talk about any updated thoughts around the U.S.

retail fueling build-out, not just the revenue assumptions maybe for this year and medium-term for that EMV aspect, but also I guess, how you are handling that in terms of working capital build, which was something you've mentioned once or twice from the prior earnings call?.

I'll deal with the working capital one, and I'll let Brad take the EMV because of course we always have an EMV slide somewhere around here. Yes, on the working capital slide of DFS or retail fueling, I think we have the conversion on our order it was as very robust in Q4.

So, we go into 2019 with not a lot of inventory, but we do have is the receivable balance from that strong growth. So in total working capital, we had highlighted the fact earlier in the year that we were going to build safety stock to accommodate what we thought was going to be a robust demand environment.

We got it at the end of the day, but from a working capital point of view, if there is any negativity of growing, it's the fact that we hugging up on receivables, but I'll leave it to Brad to comment on what -- how we have been participated in Q4 and what our view on EMV is for 2019?.

Sure, Rich. When I speak about EMV, just a reminder, I'm not talking about dispensers that are EMV ready. It's really the component pieces and we see on track and track it very, very carefully. I would say second half of '18 including the fourth quarter was above '17. So, we came out of that air pocket in the first half.

Sequentially, we go into '19 and we see growth sequentially and solid year-over-year growth in EMV. I would say DFS, our business leadership is really very, very confident in terms of how we see in our line of sight to EMV for 2018 based on discussions with our customers and specific projects.

So, EMV is shaping up to be the year-over-year up into '19 sequentially improving throughout the year..

Our next question comes from the line of Nigel Coe of Wolfe Research..

So, I just want to touch on the bookings in terms of the booking growth. Obviously, you went through a lot of detail in the slide, but I'm curious because number one, it's board based. And secondly, it's terms of going to be one of the best we see this quarter.

So, is there anything difference about the investments you've made or the structure that you put in place that could explain the inflection orders? Or is it just one of the things?.

I think that it's one of those things. I mean I think it's a reflection of the fact of the exit rate on the growth. I think it's a reflection on in certain businesses that lead times have gotten extended because of supply chain.

I mean there is an overall view I think in the market because of strains of tariffs and a variety of things that, that people are getting worried at the performance of supply chains to a certain extent. So, they are getting in front a little bit of -- getting in line for what they believe that the need for 2019.

So, overall, I don't think there is anything in there except for the fact that we've been on a pretty good -- our businesses have been a pretty with the exception refrigeration, being in a good place in terms of top line growth, and there is an overhang and worry about our supply chain getting extend in a variety of other things.

And that's allowed us to go out and ping our customers and say, look if you really want first half deliveries you got to get in line..

And then just going back to Steve's question on free cash flow, the 8% to 12% is obviously a very wide range but $3 million of bandwidth on free cash flow.

I understand the CapEx headwind, but is there anything else that's highly variable within your free cash builds cash restructuring et cetera? Maybe explain that why that wide range?.

It would be growth at the end of the day. Our expectation is we would actually underperform when the top line is moving up aggressively, and we would over perform as the businesses liquidate the balance sheet or at the midpoint..

Our next question comes from the line of Mircea Dobre of Baird..

Just going back to refrigeration here and I understand that you guys remain cautious into 2019 that business struggled a lot, but orders were finally decent maybe for the first time in almost two years.

So I’m wondering, if there is something specific in the quarter of any customer, anything that happened will be discreet? Or is this marketed finally starting to turn around a little bit?.

I think it's not any particular customer. It's broad-based since our traditional customers. I think overall it's just a reflection of capital investment in retail food as been low for quite a long period of time, and it's coming off easier and easier comps as regards to the cycle. So, we’re grateful for it.

I think it's good for morale in the business, but we remain cautious and we like to just continually update it hopefully, quarter by quarter, if these kinds of trends hold..

In terms of what you're hearing from your sales people, is it any particular vertical on? I mean is it dollars store? Or the big retailers and anything else you can say about demand?.

I don’t want to get into individual customers, but its big box and all other..

Lastly, on Belvac, anything you can talk about in terms of demand, and I presume that the comps getting a lot easier going forward.

How do you think about that business in '19?.

If we go back and look at Belvac's performance overtime, it's the lumpy. I think it's just become more material to the segment because of the fact that refrigeration shrunk so much.

So, there is nothing particularly wrong with Belvac because it’s a CapEx driven business from the beverage side and it was just a bad year, a lot of projects got deferred in a variety of other things. So I think we've also got a cautious view.

We're engaging with all of our customers where we'd like to see the backlog build sequentially and then will comment it over the year..

Our next question comes from the line of Scott Davis from Melius Research..

I don’t know much about this car wash equipment business, but maybe this would be a good opportunity late in the queue just for you guys to help educate us a little bit.

I mean how many other opportunities out there -- are there out there to really roll it up? Is it already consolidated? Is it just help us understand really where you going with it?.

Yes, I don’t know if I want to opine on kind of one of ours longer-term strategy. I mean just back up and saying that, that within the OPW, there had been a car wash business PDQ, it's been accretive to both of the segment and the Company. We like the trends in carwash.

This particular acquisition is of a size that we think that it's from an execution point of view, it's very doable for us and it widens our portfolio and our strength with our distributors. I mean now that we've got a total product to go along with our traditional position.

So, we like the secular trends in carwash in terms of the growth profile and we like our historical performance in terms of margin. And like I said, we check the box on return hurdles and execution risks.

It's a fragmented market, there is -- but at the other hand, it's now that we've done this acquisition, we are one of the largest players at least in North America.

So, we like the market structure also, but I think and to the extent that there is additional opportunities we continue to take a look at him, but it really did check a lot of boxes for companies that we're looking for..

And then I'm sure you guys are sick and tired to answering questions on refrigeration, but I'm going to pile on a little bit.

What's been the customer response to cutting SKUs, cutting capacity? I mean generally in understanding that the customer level that you just don't have a choice and we need to make these moves? Or has there been some sort of pushback particularly in the SKU risk rationalization?.

Yes, no one like this at the end of the day, I think that our track record in the second half of the year in terms of trying to run the business while preparing it for a transformational change, I'm sure that we have made some of our customers unhappy.

I think that we're working diligently to kind of layout the path where this gets our costs and control, and we believe very much that it's going to improve our quality overtime.

But having said that, I think that the businesses has been around a long time, I think there is an amount of goodwill, but clearly, we're going to need to execute on this project as we go - it's probably the biggest project that we have in right now for 2019..

Our question comes from the line of John Inch of Gordon Haskett..

So just how does the quarter progress? And I ask the question because some companies have called out a softer December, particularly end of December, some have called out sort of a softer October, the pick-up and back-up in November.

And I'm just curious because obviously you don't have necessarily a broad line of economic businesses or kind of specific to Dover. But the trends that you saw against the backdrop of global economy softening, softening in Asia.

Does that give you any kind of pause or what to watch for as this quarters come through in 2019?.

I think that our biggest worry in the quarter was conversion of what we had in the backlog. I think we got a little bit, in a perfect world we would converted it earlier in the quarter and not had to run like crazy during December from both a production point of view and from a cash point of view.

But as I said in my opening comments, it got a little dicey, but we are able to get it out the door and collect it. So, I think from an execution point of view, I think that the organization should be proud of itself. We dispatch the segment management to China because we read the same things that everybody else did.

So, segment management spent a week in China recently to go and see how it's impacting our business and like. Our management in China is feeling pretty confident.

Now we've got really to revenue streams in China, it's the consumables portion of marketable marsh which is relatively stable business and then the regulatory piece of fluids, which is geared towards OPW, which is generally has a decent line of sight in terms of backlog. So were cognizant of the risk out there.

But right now our projections for China are to grow in 2019..

In the last recession refrigeration got clipped and what's different about this program depending on how the economy plays out, but at some we will get another recession.

Refrigeration obviously not stopping or starting up a high base, and I’m just curious, you as a company have talk about the fact that the next downturn you perform much better obviously given Apergy is no longer there, but what about refrigeration? I mean are we at a base level that if there was a broader economic downturn you think that it would perform better? Or is it just the lower base in which its still go down the way it's done historically?.

John, I can’t add anything to what you said. I haven't been around long enough to really think about specifically as it relates to refrigeration but you put your finger on it at the end of the day if was to happen this year god forbid, we had such a low base in refrigeration, we’re below replacement at this point..

Okay, so it's fair to say you feel obviously I think very good about the base at least in the context of possible risks to the economy without words in your mouth?.

I think I will feel really good if we execute our plans in 2019. I mean 2018 was a tough year for the management of the business and for us. I think we got a good plan. I want to see this executed and I’m going to feel a lot better about it..

Just lastly, Rich and Brad, the 18 million the benefit you called out from near-term footprint consolidation presumably this is part of a Phase 1if you will and Dover's evolution. Where would you put this in that context? You've talked about the 200 manufacturing warehouses. Is this any way to size this in any sort of way or….

I think the way to answer, John. Yes, I think the way to answer is twofold that when we had the meeting in September, we said that the priority was to go after SG&A first because it was a one-for-one benefit and it was in your control so you can execute it.

Now we said we moved on to footprint is a lot more risky and the timing of acting on footprint is a lot longer. So that's why you see us taking a relatively small charge in the end of 2018, and the real benefit that the total benefit is in 2019.

So, the returns as you calculate the returns there are excellent, but we've got to run a business here, right. And we don't want to impact the top line, so we're pretty, pretty deliberate about how we execute these things..

But in the big picture Rich could even if it takes several years good footprint/PHASE 2b as big as the SG&A?.

I don’t want to size, but that was relatively small start that we've taken and we are forecasting 18 million. So, we look that this is a multiyear program..

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

Want to circle back on Fluids. And Rich, you talked about one of the benefits because, first of all, we don't see organic growth rate in that segment as strong as 17%.

So can you take us through with any more color the impacts of mix and pricing? And then you also said there was a benefit of some of the cost out there as well?.

I don’t want to start. I think we can do those with follow ups. I think at the end of the day the two biggest driving issues within the segment where retail fueling, we've been talking I guess in the second half of the year that because of footprint consolidation, we got a little bit behind in terms of our backlog and we had a lot of catch-up to do.

Plus the fact Brad took you over -- took you through that EMV is starting to come through, which is a positive for 2019. And the fact that we've talked about earlier in the year, some of the margin was related to mix and that's project related work that's driven by the MAG business.

So what we got in Q4 was very good conversion, and maybe not so much in EBITDA as much as we had like in EBIT, but on the top line of converting of the backlog in the retail fluids business and a lot of shipments out of MAG, which are good for margins..

And then you mentioned tariffs as a factor in fluids and then, can you also address how you did in oil and gas broadly away from retail fueling?.

The tariff related what I mentioned about tariffs is, the fact that we believe that it is contributing a little bit for the building of backlog, right. Everybody is worried about the supply-chain, which kind a piece of that is tariffs.

So customers that have plans CapEx driven plans the demand plans for 2019, we feel that's what's contributing somewhat to the good order book that we have. In terms of our view on tariffs, we will be able to cover the tariffs impact with pricing and productivity and that's our expectation for 2019..

And oil and gas?.

Our oil and gas exposure now is relatively low with the spinoff of Apergy..

But you still have a residual oil that shows up in midstream, any color there?.

It's not an overly material number and quite frankly because a lot of our pumps business is sold through distribution. I mean I guess we can do the work at the end of the day, but it's hard to parse it..

Our next question comes from the line of Joe Ritchie of Goldman Sachs..

So I guess my first question is just on the CapEx investments Rich and how are you're thinking about the expected pay back from those investments?.

What we wouldn’t be doing them and much we had positive NPVs on them at the end of the day. I called out the two bigger ones because they got a little bit of different profiles, right. So, it was to kind of message in terms of what we will consider only do big CapEx projects.

One was on the colder business, which is our connector business, I believe it was the fastest growing or maybe in second place fastest growing business that we had in 2018, and the margin is positive to both the segment in the group. So if we are going to invest in capacity expansion that's a pretty good candidate.

So, we like the dynamics of that business and we were getting chockablock in terms of our ability to grow based on our footprint. The other one is driven by what we're doing in terms of retail refrigeration and that let’s put that in kind of the productivity bucket rather than kind of the expansion bucket.

And both have different dynamics in terms of how we model the return but both of them are very NPV positive as long as we execute correctly..

That’s helpful. And then I guess just my one follow one.

When you think about the $72 million and incremental SG&A savings that come through this year, how are you thinking about that coming through? Should it all be -- should be pretty linear just given that the actions were taken in 2018?.

Yes, that’s where we think about it, linear..

And ladies and gentlemen, we do have time for one more question. Our final question will come from the line of Joshua Burzynski of Morgan Stanley..

Rich just first question on some of the footprint consolidation and some of the longer term optionality. I know it's probably premature to size it, but thinking about the percentage of the footprint that's been evaluated so just looked at so far.

What is that 18 million of savings really comprises? Is a bit, you looked at two-third of the business, you looked at 25%? Just trying to get a sense for at least what's gotten kind of the first blush so far..

I think that we’ve taken a look at the entire footprint, but not -- so cursory view of identified opportunities by operating company. Then we've kind of put them in order in terms of our ability to execute both as a group and by then an individual operating company. And so, we force rank them based on that.

So, we've got a relatively long pipeline, but execution risk and some is a lot higher than others. They need to do it from margin enhancement point of view. It's higher than some than others. I think that we signaled in September the two segments that are challenge from a margin point of view.

So our bias would be to act there first, but then it comes back to the organization's ability to execute, and we're bringing in resources in 2019 to kind of accelerate our way through 2019. But the fact of the matter is the group's track record in doing facility consolidation is not great.

So, we want to be relatively deliberate and get some momentum of successful projects and then begin to roll..

And then, I think a couple of questions to kind of nip at the edges of this. But Fluid guidance of 3% to 4% organic coming off of a pretty big quarter I think an easy comp in the first quarter, good bookings, descent visibility with EMV and you've added up things should be probably through the high end or maybe even above the high end.

I guess the one comment that you've made earlier and maybe the prepared remarks was about clearing some of the backlog there.

Is that really what pulls that within the range Is more that you had some of this business with pent-up you've work through it in and maybe now the comp is not as easy as it appears as of the fourth quarter? Just trying to calibrate how do you stay within the range there?.

Yes, we have been having quite the dialogue around here between our very good performance and conversion and how that affected the top line versus what our guidance was going to be versus the market saying that there's a slowdown in horizon and everything else. We feel great about what happened in Q4.

I don’t think that we can keep that level up through the year, but there's no reason for us not to be at the top end of the range, but these are businesses that don't have a lot, I mean, they are so small in the nature, there's not a lot of secular stories behind them. So, we took kind of the middle-of-the-road view.

And to the extent that the demand is there then will push the top end, as hard as we can sequentially to the quarters. But I think it would have been a little bit difficult for us to take Q4 and to say, well based on that in our backlog, this thing just rolls through '19. We just don’t have enough visibility right now..

No, I think that's fair. I guess the question is relative to rest of the business it seems like you baked in more of a soft landing from a macro perspective there than elsewhere.

Is that kind of a starting point?.

That's fair..

And thank you, that concludes our question-and-answer period. I would now like to turn the call back over to Mr. Galiuk for closing remarks..

This concludes our conference call. Thank you for your interest in Dover and we'll look forward to speaking to you next quarter..

Thank you. That concludes today's fourth quarter 2018 Dover earnings conference call. You may now disconnect your lines at this time and have a wonderful day..