Dover - Q1 2023
April 26, 2023
Transcript
Operator (participant)
Good morning and welcome to Dover's First Quarter 2023 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer, Brad Cerepak, Senior Vice President and Chief Financial Officer, and Jack Dickens, Senior Director of Investor Relations. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, press star and the 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. 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. Jack Dickens. Please go ahead, sir.
Jack Dickens (Senior Director of Investor Relations)
Thank you, Todd. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through May 17th, and a replay link of the webcast will be archived for 90 days. Dover provides non-GAAP information and reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website. Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn the call over to Rich.
Richard J. Tobin (President and CEO)
Thanks, Jack. Good morning, everybody. Let's start with the performance highlights on slide 3. The quarter was solid overall. We are very pleased with our production performance to start the year, which allowed us to begin re-reducing our inventory balances towards the end of the quarter. Consolidated organic revenue is up 3% with growth across most of our businesses, driven largely by the secular growth tailwinds that we outlined at our most recent Investor Day. The majority of our input and supply chain constraints have dissipated, resulting in production lead times largely returning to pre-pandemic levels. This has led to more normalized order patterns, improved shipping volumes, and a gradual reduction of elevated backlogs. New order intake was robust in the quarter, with 4 out of 5 segments posting book-to-bill of 1.
New bookings increased sequentially in the first quarter. Our order backlog remains elevated compared to normal levels, providing us with good visibility for the remainder of the year. During the quarter, we de-booked some volume from our backlog and retail refrigeration from a single customer, which put the timing of the 2022/2023 capital plan under review. Our expectation is that we'll be rebooking the volume in the second half. Margin performance in the quarter was strong, with four out of our five segments improving margins over 100 basis points, driven by broad-based productivity gains, positive price cost dynamics, and prior period investments and cost containment actions. Higher segment earnings performance drove our EPS growth. We had some comparable cost headwinds during the quarter from transitory inorganic activity costs, higher interest expense, FX and tax.
Brad will review later, interest costs are set to drop progressively for the balance of the year, and FX at current rates turns into a comparable tailwind in the back half. Our recent investments in automation and productivity projects are paying off, and we are in the process of completing several capacity expansions in our secular growth businesses. The acquisition of Witte in our Pumps & Process Solutions segment, which we completed in December last year, is off to a great start and is performing above expectations. Our strong financial position allows us to pursue a healthy pipeline of attractive bolt-on acquisitions and to opportunistically return capital to our shareholders. We are encouraged by the trends and performance so far in 2023. We have a constructive but also watchful outlook for the remainder of the year.
Overall demand conditions in our attractive industrial markets remain solid and our bookings are healthy. Our order backlogs, especially in our longer cycle businesses, provide good visibility to our forecast. We are on track to deliver our full year cash flow target as we liquidate inventory in concert with the normalization of our backlog. We are mindful of the mixed macroeconomic backdrop. We are staying close to our customers to understand their plans. We have available cost control levers and operational flexibility that should enable us to deliver good results in various macroeconomic environments. With that, we maintain our 2023 full year guidance, 3%-5% organic revenue growth and adjusted EPS of $8.85-$9.05 per share. I'll skip slide 4. Let's move on to the segments.
Engineered Products was up 3% organically in the quarter, driven by positive pricing, strong demand for waste handling equipment, parts and related digital services. The chassis availability issues that impacted the waste handling business coming out of the pandemic have improved, to the extent that supply continues to be available, we are well positioned to increase shipments meaningfully against strong underlying demand. Margins were up 230 basis points year-over-year, primarily driven by improving supply chains, positive price cost dynamics mix, as well as investments in productivity initiatives. Clean Energy & Fueling declined by 3% on an organic basis. Revenue is up in clean energy components, vehicle wash, fuel transport, and below-ground retail fueling offset by the expected comparable decline in dispenser and EMV card reader demand. The upcoming second quarter comp is the last of a material EMV volume.
We remain constructive on the business for the full year as order activity in March was healthy. Despite the lower volume, margins in the quarter were up 120 basis points on positive mix and price cost, as well as improved comparable cost structure from previously announced cost reduction actions taken in the retail fueling business. Imaging & Identification posted a solid quarter, up 8% organically on broad-based strength in our marking and coding printers, spare parts, and consumables. Our serialization software business continues to perform well and win new accounts. FX remained a negative headwind to absolute revenue and profits in this segment due to the foreign base of non-US dollar revenue. Margins in imaging and ID were very strong at 24%, improving 260 basis points on volume conversion, pricing actions, and mix.
Pumps & Process Solutions declined 7% organically in the quarter, driven principally by the post-COVID transition in the biopharma space. New orders for biopharma grew sequentially during the quarter as the impacts from inventory destocking begin to subside. At the current trajectory, we expect to have one more quarter of headwinds, then inflect positively in the second half of the year. All the other businesses in the segment posted solid organic growth during the quarter, with particular strength in precision components, industrial pumps, thermal connectors, and polymer process solutions. Operating margin was down against a peak comparable quarter in the prior year due to the mix effect from higher non-biopharma revenue. Top line and Climate & Sustainability Technologies continued its double-digit growth trajectory from the last two years, posting 16% organic growth.
Demand trends remained particularly robust in heat exchangers and T-CO2 refrigeration systems, driven by global investments in sustainability. Beverage can making continued shipping deliveries against its strong backlog. Margins came in at 16% in the quarter, up 280 basis points year-over-year on strong volume conversion, productivity, positive price cost, and good mix of products delivered. I'll pass it to Brad here.
Brad Cerepak (SVP and CFO)
Thanks. Good morning, everyone. Let's go to slide 6. The top bridge shows organic revenue growth of 3%, driven by increases in 3 of our 5 segments. Acquisitions contributed $19 million to the top line in the quarter. FX translation was a substantial headwind at 2.5% or $52 million, and impacted both our revenue growth and profitability. FX headwinds resulted in $0.06 of negative EPS impact in the quarter. At today's prevailing rates, we expect these FX headwinds to subside as the year progresses against easier comps, with roughly $0.10 of negative FX impact forecasted for the first half of the year and $0.05 of favorability in the second half. From a geographic perspective, the U.S., our largest market, was up 3% organically in the quarter. Europe and Asia were flat and down 4% respectively on timing of comparable shipments.
We expect organic growth in both regions for the full year. On the bottom chart, bookings were down year-over-year due to foreign currency translation, normalization of lead times across several businesses, and a $90 million order debooking related to a major retail refrigeration customer's decision to temporarily pause its new store expansion program. Let's move to cash flow on slide 7. Free cash flow for the quarter came in at $193 million or 9% of revenue. This represents a record first quarter free cash flow and was up over $200 million year-over-year. The first quarter is historically our lowest cash flow quarter due to seasonality of investments in working capital to support growth in the year ahead.
As discussed previously, with supply chains improving, we have been actively working to liquidate our working capital balances in 2023, and we are beginning to see the results materialize. We expect our working capital balances, and particularly our inventories, to reduce over the balance of the year and to be a significant driver of year-over-year cash flow. Excluding any impacts from acquisitions, we should materially pay down commercial paper balances over the next several quarters. As a result, we would expect interest expense to decline by $10 million between the first half and second half of the year. Our forecast for 2023 free cash flow remains on track for between 15% and 17% of revenue. I'll turn it back to Rich.
Richard J. Tobin (President and CEO)
All right, let's go to slide 8. Here we show the growth and margin outlook by segment for 2023 that are underpinned by our current bookings and backlog trends. I'll make a few summary comments before I jump into the segments. First, our lead times have largely normalized across the portfolio. We highlight on the chart our good backlog levels are primarily driven by a handful of operating businesses that are either long cycle in nature or experiencing secular growth where there is a supply-demand deficit or both. Our expectation going to the year was that order rates would normalize in an orderly fashion because the repaired supply chains removed the rationale for customers to order far in advance.
Order rates in the first quarter were strong across most businesses, which is a positive indicator for our full-year revenue targets, which do not require book-to-bill above 1 every quarter due to the aforementioned backlogs. We expect growth in Engineered Products to remain solid, driven by pricing carryover as well as pent-up demand and improved chassis availability in refuse collection vehicles. We expect trading conditions in aerospace and defense, industrial automation, and winches to remain constructive following 2 years of excellent volume growth. We expect vehicle aftermarket to be stable. Engineered Products are set to improve margins in 2023 on solid volumes, benefits from our recent productivity capital investments taking hold and positive price cost tailwinds. Clean Energy & Fueling should grow low single digits organically on solid demand in all businesses except above ground dispensers.
The constructive booking rates and customer sentiment in the dispenser business point to improvement from here, with Q2 being the last quarter of negative EMV mix impact. For the year, we expect margin improvement in Clean Energy & Fueling on volume recovery, improved mix, proactive restructuring actions in above ground fueling, and we expect revenue and absolute earnings growth to be entirely second half-weighted for this segment as EMV volume comps fade. Imaging & Identification is expected to continue its mid-single digit growth trajectory through the year. We see robust demand for our printers, consumables and professional services, and the outlook for our software offerings is also strong after some recent customer wins. Full year margins should remain attractive for this segment. We project flat organic growth for the year in Pumps & Process Solutions. Quoting activity remains strong in industrial pumps.
The plastics and polymers business continues to deliver against record backlog levels, with particular strength in the U.S. and in China. The Vidatex pumps acquisition provides much needed capacity to our Maag business. Demand for engineered bearings and compressor components remains robust, with a notable mix in order rates towards energy transition markets such as hydrogen, LNG and carbon capture. Thermal connectors continues to grow well into the double digits. In biopharma, we expect the business to remain at current conditions in the second quarter and return to growth in the second half of the year as order rates continue to improve. As we discussed during the Analyst Day, the long-term tailwinds for single-use components for biological drug manufacturing are robust. Our full year margin target for this segment is approximately 30%.
The growth outlook for Climate & Sustainability Technologies is solid as our businesses continue to ship against strong backlog levels. We are forecasting continued double-digit growth in both natural refrigerant systems and heat exchangers for heat pumps. We expect some second quarter headwinds in refrigeration cases due to the aforementioned deep booking impacting fixed cost absorption, but we remain constructive on the overall demand and continue to expect our multi-year journey of margin improvement for the business. Beverage can making is booked for the next several quarters, and we have some very interesting opportunities in the pipeline. We expect continued margin improvement in 2023 on volume conversion, productivity gains and mix. Let's go to slide 9. Here we show the range of new to market products and status of some of our important expansion projects that allow us to sustain our competitive advantages in our marketplaces.
We are very bullish on the long-term value creation opportunity for these new product launches. You'll see each of these products touch sustainability, digitization or biopharma and hygienic applications. Our growth and capacity expansion projects are progressing well, whether behind our heat exchangers, natural refrigerant systems or biopharma businesses. Each of these applications are growing in double digits, and over the long term, these will be important drivers of our underappreciated organic growth story. Our previously announced restructuring within the retail fueling segment is on track as we transform this business model. We also took some incremental footprint restructuring actions in retail fueling in Europe in the first quarter, and we have several ongoing projects across other operating companies as well. Let's wrap up on slide 10.
Dover's portfolio consists of a range of niche middle market industrial franchises with significant diversification from a product and end market exposure perspective, many of which we believe have secular growth tailwinds. Our supply chains are not overly complicated and our manufacturing operations are lean and getting leaner. We believe our diverse end markets exposure together with our flexible operating model and value-added center led initiatives will continue to be a competitive advantage for us regardless of the macroeconomic environment. We believe that we have line of sight for our full year forecast and a range of available cost levers to ensure we deliver. With that, we are maintaining our full year 2023 guidance. Jack, let's go to Q&A.
Operator (participant)
If you would like to ask a question, simply press the star and the 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. We ask that participants limit themselves to 1 question and 1 follow-up. Again, that's star 1 to ask a question. Our first question comes from Jeff Sprague with Vertical Research Partners.
Jeff Sprague (Founder and Managing Partner)
Thank you. Good morning, everyone. Hey, Rich, as Brad pointed out, if you get these inventories to normalize, you know, the cash comes through, you de-lever pretty quickly. Just wonder what you're seeing on the M&A side of the equation, and, you know, are the things that are actionable, in the pipeline in 2023 in your view? Also just wonder if you'd comment on, you know, potential interest in Carrier's refrigeration business, which had a for sale sign up on it this morning?
Richard J. Tobin (President and CEO)
I'll take the second one first. I, you know, no, I think. It's just a purchase, I would say no, but I think that's early days to see what happens in the space. Any activity in the space in total is interesting. I'll leave it at that. In terms of M&A, yeah, we're You know, we took some cost in Q1 around inorganic activity, so I guess that's an indication that we're working on some things that we hope to get across the line. I can tell you overall there's not a lot coming to market for all the reasons we can understand, but the good news is that multiples are now converged with the public markets and the competitiveness or lack of PE participation is helpful.
More to come, but, you know, I think that we're pleased with what we got going on in the pipeline.
Jeff Sprague (Founder and Managing Partner)
Just on this, de-booking, I mean, are you seeing any other signs that, retailers are just wavering either on, you know, new stores or remodeling, or you think this is truly a one-off? I think you said you expect it to actually rebook at some point later in the year.
Richard J. Tobin (President and CEO)
Yeah. This was more of a one particular customer basically revisiting strategically what their intent is. It's our customer. We expect that process to take, you know, somewhere between 4 to 6 months. At that point we go back. It just wasn't, you know. We could have kicked the can here and just left it in backlog, but then it becomes a problem in terms of inventory and our planning process, so we just made the decision just to de-book it out of backlog. It is a one-off. I mean, right now what we're hearing from our clients is, again, they're still having trouble getting the labor. They're still unhappy with the inflation cost of doing their builds, but they continue to like to do the builds.
The demand is still strong and like, you know, this one is just a strategic issue as opposed to kind of an overall commentary on the market.
Jeff Sprague (Founder and Managing Partner)
Great, thanks. I'll leave it there.
Operator (participant)
Thank you. Our next question comes from Steve Tusa with JP Morgan.
Steve Tusa (Managing Director)
Hi, good morning.
Richard J. Tobin (President and CEO)
Hey, good morning.
Steve Tusa (Managing Director)
Can you just talk about the, you know, what you expect to see here in the second quarter? I think you made some comments in the 10-Q about some of the organic growth rates. It seems like everything is relatively stable, we have to take into account the de-booking in the refrigeration business. Is that, you know, roughly how we should think about organic growth in the second quarter? I know the comps are kind of all over the place these days, but maybe just a little color on the sequential trend there.
Richard J. Tobin (President and CEO)
I mean, I think that we, you know, we would have expected to build some of that product in Q2, so that's a bit of a headwind there. Quite frankly, the bigger issue for Q2, is the last remaining quarter of bio and EMV. To me, Q2 is always gonna be, from a comp point of view, you know, sort of like Q1 to a, to a certain extent. We really feel good about the back half of the year because the comps roll forward and all the bottom below the line charges, call it that for lack of a better word, actually roll positive. I mean, Q2 should look a lot like Q1, relative comp to comp.
Steve Tusa (Managing Director)
Relative comp to comp. I mean, absolute, you usually do step up quarter to quarter.
Richard J. Tobin (President and CEO)
Yeah.
Steve Tusa (Managing Director)
Like just on an absolute EPS basis, I mean, are we.
Richard J. Tobin (President and CEO)
A bit, yeah.
Steve Tusa (Managing Director)
Should we take normal seasonality and just subtract the?
Richard J. Tobin (President and CEO)
Yeah, sure.
Steve Tusa (Managing Director)
cancellation?
Richard J. Tobin (President and CEO)
No, I mean, I wouldn't get too hung up on trying to monetize the math on the door cancellation. It is a bit of a headwind in Q2. What I'm saying is, if you look at Q1 to Q1, Q2 is gonna be similar in terms of Q2 to Q2 comp.
Jeff Sprague (Founder and Managing Partner)
Yeah.
Richard J. Tobin (President and CEO)
There's a step up in volume there.
Jeff Sprague (Founder and Managing Partner)
Yeah. I would say the historical first half to second half is not, you know, applicable at this stage. It's a little bit more to the back half, as we said before, Steve.
Steve Tusa (Managing Director)
Okay. That makes sense. you know, Rich, you've been among... Sorry, just on price cost, any update there for the year? What are you guys seeing on those numbers?
Richard J. Tobin (President and CEO)
I think, you know, we're not really taking any more meaningful price action. I mean, I think in certain areas, yes, but I mean, I think we're happy to just continue to get what's already baked into the system.
Steve Tusa (Managing Director)
Okay, you're positive though, on a price cost spread basis?
Richard J. Tobin (President and CEO)
Yeah, I mean, we are. You know, our expectation is to be positive for the full year.
Jeff Sprague (Founder and Managing Partner)
True.
Richard J. Tobin (President and CEO)
Yeah.
Steve Tusa (Managing Director)
Okay. All right, great. Thanks a lot.
Operator (participant)
Thank you. Our next question comes from Andy Kaplowitz with Citigroup.
Andy Kaplowitz (Managing Director)
Hey, good morning, everyone.
Richard J. Tobin (President and CEO)
Good morning. Hi, Andy.
Andy Kaplowitz (Managing Director)
Rich, I know how much you love talking about orders, but let's do that. What if we exclude the order reversal in Climate, your book-to-bill was over 1 in Q1, and you're on pace for an order number, you know, closer to $8 billion than the numbers we discussed last quarter. I think you said that order lead times have already mostly normalized. At this point, is it looking more likely that you'll not go back to that sort of more normalized backlog, at least this year, and that book-to-bill may remain healthier than you previously thought?
Richard J. Tobin (President and CEO)
Oh, boy. Orders in Q1 were better than we had modeled. Interestingly, just to give a little color of it was all in March, so it was tracking the way that we thought it was gonna track. We would expect it to be below 1 in Q1 just because of the size of the backlog and the non, the non-need to order so far in advance. March was very healthy. You know, it's early days. If that pace keeps up, that's great for our full year volume forecast. Like I said before in the comments, we don't need to be above 1 every quarter for the balance of the year to hit our numbers. It's early days, you know.
I think that overall, we're pleased with the book-to-bill of Q1 because it's a little bit better than expected, remember, but you have to recall, remember numerator and denominator, Q2 and Q3, we step up on the shipment side, right? You need almost a greater inflection of orders to stay above 1 from there. You know, we'll see how it goes, but we'll take better than expected book-to-bill in Q1 any day of the week.
Andy Kaplowitz (Managing Director)
Yeah, that's helpful, Rich. you know, maybe just on DCST again, you obviously still have very high backlog coverage, you know, even with the debooking. you know, when you look at the business, I know you're still forecasting mid-single digit growth. You talked about, you know, the Q2 issue, you know, is that mid-single digit growth really more of a minimum, you know, given sort of the capacity additions you've got and the strength in heat exchangers and CO2 systems? How durable is the growth, you think, as you go forward, even if economic conditions get a little more difficult?
Richard J. Tobin (President and CEO)
Well, we're very prospective on the CO2 systems and on the heat exchanger side, which is the reason that we're expanding capacity. That capacity is gonna take basically the balance of the year to progressively come online. We probably could sell some of that capacity if it was in place now, but we think that we've stolen the march in terms of our capacity build versus our competitors there. We're bringing it online as fast as we can, but you can't sacrifice quality, and there's a variety of other things that you need to do to get it done.
The swing factor will be, as I mentioned in the comments, that we have some interesting projects in Belvac, which we would expected Belvac to cycle down some in Q2, which I think we talked about at the beginning of the year. If we were able to book that would be a positive in terms of back-end growth. Look, at the end of the day, we expect to rebook the refrigeration business in the second half of the year. I will tell you that that cost structure of that business is much more flexible than it's been in the past. Even if we were to miss a little bit in terms of the top line growth there, I don't think that we're gonna see the margin dilution that you would have seen historically.
Andy Kaplowitz (Managing Director)
Appreciate it, Rich.
Operator (participant)
Thank you. Our next question comes from Joe Ritchie with Goldman Sachs.
Joe Ritchie (Managing Director and Senior Equity Research Analyst)
Thanks. Good morning, guys.
Richard J. Tobin (President and CEO)
Joe.
Joe Ritchie (Managing Director and Senior Equity Research Analyst)
First question, I guess maybe just following up on Andy's question on orders. Rich, what surprised positively in March from an order standpoint?
Richard J. Tobin (President and CEO)
North American dispensers, I think was a positive surprise. We were not expecting that to inflect until the back half of the year. Heat exchangers, I mean, like, I think that if we really wanted to go get the orders now, we could basically book the balance of the year in terms of backlog. That's been good. Printing and ID, I think if you look at the performance of Q1, has been excellent. I mean, that's business that I don't think anybody models 8% growth rate there at some really good margins. I mean, it's broad base of the portfolio. I think what we're most pleased with, I guess, is that biopharma inflected, right?
We, you know, you see our customers now reporting their earnings that we, you know, we were kind of three quarters in front of everybody else in the destocking. We feel good about basically this inflecting this in the second half of the year. I think that we've had a more positive view, I think, on retail fueling than, I guess, the market would expect. If March orders are a precursor, I think we feel good about our full year estimates.
Joe Ritchie (Managing Director and Senior Equity Research Analyst)
Awesome. No, that's great. It's a good segue into biopharma, right? It seems like you're probably at a trough margin for the segment in 1Q. I think you're still expecting the margins for the year to be pretty much flat, you know, year-over-year, versus last year. That would imply a pretty significant improvement from here. How do you think about the cadence of that improvement over the coming quarters?
Richard J. Tobin (President and CEO)
Well, I mean, the negative comp is less so in Q2 than Q1. It was pretty significant in Q1, as you can see from the margin performance. It's still negative in Q2, and it reflects positively in the second half. The interesting part about it is we really never lost operating margin on the lower volume. We actually preserved margins. We just lost all of the volume and all the gross margin associated with that volume. The more interesting thing about targeting 30% for the full year is the balance of that segment is growing very well, and it's dilutive to biopharma.
To get to 30, it, you know, it's interesting that if those parts of the portfolio grow significantly or at least stay on the track that they're on right now, we'd probably have a little bit of difficulty to reach 30 just because of the portfolio effect of the segment itself. Better news is, you know, we've been waiting now, but biopharma looks like it turns from a headwind at the half to a tailwind going forward, and we'd expect that tailwind to be material in 2024.
Joe Ritchie (Managing Director and Senior Equity Research Analyst)
Great. Very helpful. Thanks, guys.
Operator (participant)
Thank you. Our next question comes from Andrew Obin with Bank of America.
Andrew Obin (Managing Director of Equity Research)
Hey, Rich, how are you?
Richard J. Tobin (President and CEO)
Good, Andrew, how are you?
Andrew Obin (Managing Director of Equity Research)
Good morning. Hi, Brad. Hi. Question. Now that you guys are a, you know, a HVAC heat pump company, or, can we just talk about SWEP a little bit? I think Carrier just talked about the market tripling for European heat pumps. You've highlighted SWEP capacity additions in one of the key areas for expansion for your company. You highlighted order upside in this business. Do you guys have enough capacity to keep up with this tripling of the market? How do you see... I know that you and Alfa Laval sort of at the top of the market right now. How do you see sort of incremental competition sort of coming in and screwing up this market? Thank you.
Richard J. Tobin (President and CEO)
We have not had the time to digest what Carrier put out there in terms of the marketplace. I'll take a pause on that. We have been participating in the growth of the European heat pump market now for several years. I think that we are proactive in terms of building out our capacity. As we mentioned, we're our target is to increase capacity early in 2024 by 50% for SWEP. Part of winning share is to have the available capacity at the right product quality at the right price point. That's all we can do. We would expect that we'll receive part of whatever estimates you wanna make about what the future is in terms of heat pump growth from here. We don't think it's just a European phenomenon.
We'd expect that technology to be adopted progressively over the balance of the world, driven a lot by regulation, and that's why we're not just expanding our capacity in Europe. We've actually expanded it in Asia and the United States also.
Andrew Obin (Managing Director of Equity Research)
Thank you. Just a question. You know, we sort of agree with you on the impact of order rates, supply chain normalization on order rates. It does seem you're starting to release working capital. Where are you just in your broader thinking about the balance between the state of economy, credit availability, and just broad... I'm not asking about Dover. I'm not asking about Dover order rates, right?
Richard J. Tobin (President and CEO)
Yeah.
Andrew Obin (Managing Director of Equity Research)
Just, order rates for industrial economy as a whole, because I think you have sort of great insights over the past 24 months about the entire dynamic. Thank you.
Richard J. Tobin (President and CEO)
Yeah. I mean, I can't remember the Sammy Hagar song about, like, one foot on the gas and one on the brake. That's the way we're trying to run it here, right? That meaning that there's a lot of macro uncertainty in the marketplace. We think that we've got some tailwinds, but we can't just be blind of not watching our own balance sheet. Quite frankly, we've been carrying excess inventory for 2 years around here. It was natural for us to kind of liquidate. You know, our watch points are the businesses that we have that are subject to constriction in credit.
You know, to pick one and not to be overtly negative here, I mean, our car wash business, you know, is largely driven in a certain way of entrepreneurs getting loans and building out car wash. Well, the fact of the matter is that credit's gonna be tightened. Now, does that open up the door for our big retail clients to now meaningfully move into the car wash space? We'll see. There's a lot of moving parts here. At the end of the day, my personal view, it's going to be a consumer driven recession, and which I think that we're gonna get.
I think whether that negativity is fully offset by the amount of capital that is going into kind of the regulatory regime or reshoring or a variety of other tailwinds that we talked about during the Investor Day, our position right now is yes. All right? That implies really no degradation of the macro in a meaningful way from here, kind of like a slow let the air out of a balloon as opposed to a, you know, a shock. We're, you know, we're gonna have a management meeting here as soon as this Q&A is done, and part of what we're gonna do is basically go business by business and say, "All right, what's your plan to meet your numbers for the year, and what's your plan if we run into trouble?" Right?
We have no choice but to run the corporation that way.
Andrew Obin (Managing Director of Equity Research)
Thank you.
Operator (participant)
Thank you. Our next question comes from Mike Halloran with Baird.
Mike Halloran (Associate Director of Research and Senior Research Analyst)
Hey, good morning, everyone.
Richard J. Tobin (President and CEO)
Hey, Mike.
Mike Halloran (Associate Director of Research and Senior Research Analyst)
Oh, by the way, nice I can't drive 55, Sammy Hagar reference. Anyways, maybe just following up on that last question there, how are you guys thinking about the, or what are you seeing on the larger CapEx side, some of the later cycle, longer cycle type stuff? Are you seeing any change in the purchase patterns there, obviously outside the climate debooking? Any real change on that side or anything notable?
Richard J. Tobin (President and CEO)
Well, we modeled in a reduction in CapEx in beverage can making. If you go look at what the big can makers are saying, they're kind of pausing and getting their footing together there. That was modeled into our forecast. You know, heat pumps, I think, is the issue du jour, so we'll leave that alone for the time being. You know, on the retail fueling side, it's actually the amount of negativity around that I think is overcooked because we do see a lot of CapEx still there.
We still expect a lot of consolidation there, which drives CapEx when those retail operations are, you know. You basically are taking smaller stations and building much more larger complex stations, which is good for us. Mike, at the end of the day, you know, plastics in terms of raw production of capacity expansion, particularly in Asia and North America, is quite good despite energy costs moving up a little bit. The watch points for us is more credit tightness and how that affects CapEx for kind of not for big OEMs, but for kind of like the second layer. That's where we think there may be some tightness.
Mike Halloran (Associate Director of Research and Senior Research Analyst)
No, that makes sense. On the flip side of that coin, on the short cycle side, have trends on that side been relatively stable from a seasonality perspective or any real movement there?
Richard J. Tobin (President and CEO)
It's been relatively stable.
Mike Halloran (Associate Director of Research and Senior Research Analyst)
Great. Appreciate the time. Thanks.
Richard J. Tobin (President and CEO)
Thanks.
Operator (participant)
Thank you. Our next question comes from Julian Mitchell with Barclays.
Julian Mitchell (Managing Director)
Thanks. Good morning. One point I just wanted to check in on was on DEP, which I don't think has got much attention yet, but you had a very good margin expansion year-on-year in the first quarter, you know, down sequentially. Just trying to understand sort of as we think about margins for the year, they're growing, I think, for the year as a whole. Is that all kind of first half loaded? Do you think we should see decent margin expansion as you move through the year? Does the sort of the flattish vehicle aftermarket guide, does that have any margin impact or it's a sort of similar margin to the segment?
Richard J. Tobin (President and CEO)
The margins should go up into Q4. You know, if you go back and look at Q4 margin, we would expect Q1 margin to come down solely on production performance. We would expect it to come down, but from a comp point of view from here, we'd expect to have accretive margins up until Q4, and then we'll see how we end the year because I think our margins as you saw were quite robust. On the vehicle, calling that market flat, right? It's not a negative in terms of consolidated margin from the segment. That's more of a top-line comment as opposed to a margin comment.
Julian Mitchell (Managing Director)
That's helpful. Just my follow-up, I know you tried to give some Q2 commentary when prompted and in the spirit of letting no good deed go unpunished, you know, we've had a lot of questions on your second quarter sort of commentary. I just wondered if you could put any. You know, fully understand you do not guide quarterly, but, I don't know if there was any finer point you could put on that second quarter color. You know, you're kind of saying that EPS in Q1 was up, low single digit year-over-year, and so the second quarter doesn't look too different from that year-over-year performance.
Richard J. Tobin (President and CEO)
I think it's more, Julian, of the performance in terms of revenue and margin looks comp to comp look similar. Now, having said that, we had an $0.08 of EPS headwind of kind of below the line segment headwinds, which we believe dissipates. I don't wanna get into EPS accretion guidance quarter to quarter, but
Julian Mitchell (Managing Director)
Yeah.
Richard J. Tobin (President and CEO)
It looks if you look at Q2, if you look at the performance, relative performance, Q1 to Q1 comp, and do the same for Q2 to Q2 comp, it should look similar, probably without some of the headwind that we saw on the below the line items.
Julian Mitchell (Managing Director)
Perfect. Thanks very much.
Richard J. Tobin (President and CEO)
You're welcome.
Operator (participant)
Thank you. Our next question comes from Scott Davis with Melius Research.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Hey, good morning, guys.
Richard J. Tobin (President and CEO)
Hey, Scott.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
A lot of territory has been covered here, I don't wanna beat a dead horse, but Rich, would it be fair to say, you know, you said earlier that better than expected book-to-bill in the quarter? That comment is clear. Was it also better than expected price in that book-to-bill in the quarter? I mean, piecing it together, it sounds like the answer is yes, but I haven't explicitly heard you say that.
Richard J. Tobin (President and CEO)
No. The price that we have, the price that the accretion from price overall is just peanut buttered over what we see the sequential revenue growth is in for the full year. It's not as if we put new pricing out there, and so that book-to-bill is kind of more accretive than what we have modeled at the end of the day. I'd have to go back and take a look in terms of mix, but as you can imagine around here, calculating mix effect on that many revenue streams is a bit difficult.
You know, overall, Scott, it was we knew we were carrying big backlogs into 2023, and we knew, and our customers knew that our lead times were coming down quite a bit, so we would expected kind of to do more of a bleed off of not necessarily the backlog, but it would reflect it in the lower order rates. You know, like I said, in March, we had a pretty good inflection in terms of orders, which allowed us to get above 1, because as I mentioned, with what we've got modeled in for backlog depletion, we don't need to be above 1 this year. That's why we're trying to kind of coach everybody into, let's not panic if we don't do above 1. We don't need to be above 1 to hit our numbers.
Scott Davis (Chairman, CEO, and Lead Research Analyst)
Yeah. That's clear. Okay, I'm gonna keep it at that, guys. You answered everything else. I appreciate it, and best of luck.
Richard J. Tobin (President and CEO)
Yeah, thanks.
Operator (participant)
Thank you. Our next question comes from Joshua Pokrzywinski with Morgan Stanley.
Joshua Pokrzywinski (Analyst)
Hey, good morning, guys.
Richard J. Tobin (President and CEO)
Good morning.
Joshua Pokrzywinski (Analyst)
Rich, just on that comment on March in terms of the booking rates being better, you know, can you put that in context of these lead time improvements and, you know, what you would expect it to be kind of in the opposite direction? Was that surprise really in these longer cycle or longer lead time businesses where maybe folks were, you know, kinda waiting to see what they wanted to do or waiting to see what that supply chain impact was and then came back? Or was it in the more like shorter cycle, you know, economically sensitive stuff?
Richard J. Tobin (President and CEO)
Both. Right. You had a positive inflection of biopharma that we talked about. I think retail fueling inflected positively, which is a good sign. On the longer cycle side, plastics and polymers, which is a long cycle business, booked very well. We expect it to book very well again in Q2. It's both, I mean, at the end of the day. We haven't even had the time to dissect it order by order. I can tell you just in terms of the... It's not overly short cycle, or exclusively short cycle because there is an element of the long cycle in there, which you're gonna see probably in our backlogs by the time we close Q2.
Joshua Pokrzywinski (Analyst)
Got it. That's helpful. Then just on, Climate & Sustainability, you know, I think there's some decent, you know, mix within mix there. Maybe just to avoid, you know, something like what happened in Pumps & Process, is there, you know, a quarter that you could see coming or a period of time where you would expect, you know, some outsized mix effect to show up? Or should we just see kinda the steady progression we've seen thus far?
Richard J. Tobin (President and CEO)
Yeah. I think everybody overestimates the margin in Belvac, which is accommodated into our forecast for the full year. You know, 'cause as we mentioned, we've been kind of transparent about what the cycle was there. We would expect to see some kind of fade there, but it's not something that we can't mop up because CO2 systems and heat exchanger margins are at minimum flat to what we get in beverage can making.
Joshua Pokrzywinski (Analyst)
Got it. I'll follow over there.
Operator (participant)
Thank you. Our final question will come from Brett Linzey with Mizuho Americas.
Brett Linzey (Executive Director)
Hey, good morning, all.
Richard J. Tobin (President and CEO)
Morning.
Brett Linzey (Executive Director)
Yeah, first question just on Pumps & Process Solutions. Good to see some stabilization there in biopharma. Just curious how we should think about the mix benefit on the other side here. You know, obviously some sequential improvement through the year, but thinking about next year, I mean, are we gonna be, you know, expanding back into that 32%, 33% level?
Richard J. Tobin (President and CEO)
Well, that's pretty aggressive. Look, at the end of the day, as I mentioned, we actually did not give up margin going down. We just gave up the mix effect of that reduced volume on the segment itself. All I can tell you is we would expect on the way back up that from a margin mix point of view, it's clearly positive, and that's why I think that we're sitting, you know, as I mentioned in my opening comments, we're, you know, trying our best to get to 30 for the full year, which implies some amount of positive. You know, we know we have the comp positivity, but it implies some amount of growth in the second half of the year at some healthy biopharma margin.
More importantly, you know, as we went through in the Investor Day, if we strip out the COVID, the core business is growing 20%. If we get some growth in the back end, it's margin accretive. As we roll into 2024, if we can keep on that trajectory, then it becomes meaningful in terms of absolute profits and margin. What I don't wanna do is to talk down the growth rates of the rest of the segment from a mix point of view, because if they grow significantly themselves, then you're gonna have a little bit of a margin mix drag. In absolute profits, we'll take it.
Brett Linzey (Executive Director)
Yeah. Makes sense. Just on slide 9, you called out the ongoing restructuring actions, I think $14 million in the first quarter. Where are you in terms of rightsizing efforts? Do you think you're in a pretty good spot in terms of capacity, you know, aligned with deliverables, or is there more to do there?
Richard J. Tobin (President and CEO)
In Fueling Solutions, I think that we're probably 90% there. I mean, we've taken a bunch of cost out last year, and then we took some further actions this year. The management team is doing a real good job of kinda getting their arms around positioning the cost structure of that business based on what we believe the demand is and the business model is gonna be going from here. Having said that, the balance of the portfolio has opportunity in it, and I think if you go back and read the comments, I think I wrote into the fact that we would expect, some further footprint actions to go on, and I think you'll begin to see some of that this year.
Brett Linzey (Executive Director)
All right. Great. Leave it there. Thanks.
Richard J. Tobin (President and CEO)
Thanks.
Operator (participant)
Thank you. That concludes our question and answer period and Dover's first quarter 2023 earnings conference call. You may disconnect your line at this time, and have a wonderful day.