Dover - Q1 2024
April 25, 2024
Transcript
Operator (participant)
Good morning and welcome to Dover's First Quarter 2024 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, Investor Relations. After the speaker's remarks, there will be a question-and-answers period. If you would like to ask a question during this time, press star and then the number one on your telephone keypad. If you would like to withdraw yourself, please press star two. 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 (VP)
Thank you, Natalie. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through May 16th, and a replay link of the webcast will be archived for 90 days. 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'll turn the call over to Rich.
Richard Tobin (Chairman, President and CEO)
Thanks, Jack. Let's go to slide three. First quarter results were in line with our expectations. Strong performance across several of our end markets, together with improving order and shipment trends in biopharma components and growth platforms, were able to offset the countercyclicality in some of our long-cycle portfolio in what was expected to be our toughest comparable quarter this year. It is clear that our operating posture that we took in the second half of 2023 to proactively curtail production has had its intended effect. Customer and channel inventories are now largely in balance with prevailing demand conditions and level set to normalize lead times. As a result, order momentum in the quarter was strong and broad-based, particularly in our shorter-cycle end markets, building off an exit rate from last year and bolstering our confidence for the full-year outlook. We remain active on capital deployment.
During the quarter, we closed two synergistic bolt-on acquisitions that add attractive digital and reoccurring revenue streams to our retail fueling and car wash platforms. The DESTACO divestiture closed at the end of March as part of our ongoing portfolio evolution. We also launched a $500 million accelerated share repurchase program at the end of February to return excess capital to our shareholders. Our strong cash flow generation, along with the proceeds from the DESTACO sale, provide ample capacity for further capital deployment in 2024. We're off to a solid start to the year, and the setup for the remainder of the year is encouraging. Our order rate momentum and healthy underlying demand conditions support the outlook for volume and margin improvement as we progress through the year.
We are narrowing our full-year adjusted EPS guidance towards the higher end of the range and will continue to evaluate our full-year targets as the year progresses, especially if demand trends continue. Let's go to slide 4. Our revenue is up 1% in the quarter. Bookings were up 3% organically year-over-year and up 12% sequentially in the quarter, reflecting growing order rate momentum across much of the portfolio. Of note, after 7 quarters of bookings declined as a result of the post-COVID backlogs, we have now seen positive bookings growth in 2 straight quarters and expect this positive trend to continue for the rest of the year. Segment margins were 19.7%, down 30 basis points. We expect to return to positive year-over-year accretion from here on mix and volume leverage.
Adjusted EPS was up to $1.95 per share in the quarter, and we are guiding 1%-3% organic revenue growth and adjusted EPS of $9-$9.15 for the year 2024. Let's go move on to slide 5. Engineered Products had a robust quarter, particularly strong volume growth and conversion waste handling, which set an all-time record for first quarter profits and should continue its positive trajectory on strong truck body order momentum and software adoption. Aerospace and defense also posted double-digit revenue growth. Volumes improved in vehicle aftermarket on better end-market conditions and bookings growth, including in Europe. We expect volumes to remain strong for the segment throughout 2024. Margin performance was solid in the quarter on strong volume conversion, price-cost dynamics, and productivity investments.
Clean Energy & Fueling returned to positive organic growth in the quarter after nine consecutive quarters of flat to negative top-line performance driven by the end-of-the-EMV cycle in North America and channel destocking in what is our most heavy distribution exposed segment. Margins were down in the quarter on negative comparable mix, but we expect to see sequential improvement from here and target full-year margins up over 2023, driven by attractive volume conversion and the benefits from previously enacted cost control measures. Imaging & Identification posted a steady quarter with lower printer shipments in Europe and the U.S., largely offset by strong volumes and consumables in aftermarket. We expect top-line to return to growth next quarter and to be up for the year. Margin performance was exemplary on cost controls and higher mix of consumables and aftermarket shipments.
Pumps & Process was up organically in the quarter on robust volumes in polymer processing and precision components. Order rates for thermal connectors were very encouraging. We were pleased to see biopharma shipments grow year-over-year, with orders gaining further momentum with a book-to-bill of 1.08 as customer inventories continue to normalize and commercial drug production and new therapy development remain robust. I would like to point out that our biopharma business is nearly all consumable, and in the post-pandemic, destocking headwinds dissipate. This is mostly driven by biopharma production volumes, which are growing. Margins in the segment were down modestly due to strong volumes in polymer processing, which are slightly dilutive to the consolidated segment margin. If order trends hold, we expect margins to be positive sequentially from here.
Brad Cerepak (SVP and CFO)
Mm-hmm.
Top-line performance in Climate and Sustainability Technologies was down as expected, driven by the expected capital investment slowdown in beverage can making and the impact of destocking and stocking headwinds in the broader HVAC complex, most notably in European residential heat pumps on our brazed-plate heat exchanger business. In contrast, our U.S. heat exchanger business continues to grow in double digits on technology share gains and involving and evolving end-market applications, including data centers. We expect top-line to improve as the year progresses with easier comparable performance in the second half of the year and supported by strong volume in CO2 refrigeration systems, which drove the bookings growth for the segment on several key customer buildout wins. I'll pass it on to Brad.
Thanks, Rich. Good morning, everyone. Let's go to slide 7. Top line shows our organic revenue decline of 1%. Acquisitions contributed 2% to the top line, while FX was essentially flat. The DESTACO sale, which closed on March 31st, will be an offset to acquisition revenue growth beginning in Q2. Total deal costs in the quarter were $3 million or $0.02 of EPS relating to the sale of DESTACO and ongoing deal activity. From a geo perspective, the U.S., our largest market, was up 1% in the quarter, while Europe and all of Asia were down 1% and 5% respectively. China, which represents about half our revenue base in Asia, was up 5% organically in the quarter, with improving conditions across several end markets.
On the bottom chart, bookings were up year-over-year and sequentially on strong order momentum as a result of largely normalized channel inventories and lead times. Our cash flow statement is on slide 8. Free cash flow for the quarter came in at $122 million or 6% of revenue. Q1 comparable performance was impacted by investments in working capital due to the timing of shipments, driving higher receivable balances as well as investment in inventory ahead of seasonally strong stronger quarters in Q2 and Q3. The first quarters traditionally are our lowest cash flow quarter of the year. The change in accrued taxes was driven principally by the recording of future tax payments related to the DESTACO divestiture.
We plan to adjust these tax payments out of free cash flow reporting as they are non-operating in nature, in line with the exclusion of the gain on the sale of our adjusted P&L results. Our forecast for 2024 free cash flow remains on track between 13%-15% of revenue. I'll turn it back to Rich.
Richard Tobin (Chairman, President and CEO)
Okay. Before we go to Q&A, I wanted to provide a little bit more color on some of the product lines that helped deliver our results in the last quarter and positioned us to continue growing in high secular growth rate markets. Early on, we saw significant growth opportunity in each of these markets and proactively invested in CapEx and R&D to cultivate technological leadership and provide a sufficient foundation to win and scale with our customers. Across these markets, we enjoy leadership positions with strong brand recognition and well-entrenched intellectual property protection. Each of these end markets have enjoyed double-digit growth trajectories over the past 5 years, and the robust booking trends in the first quarter point to these markets remaining meaningful contributed to Dover's overall revenue growth profile. In total, these products deliver attractive margin conversion that is accretive to Dover's consolidated margin.
In CO2 systems, we were the early mover in transplanting natural refrigerant technology from Europe to the U.S., where we currently enjoy a technological lead and have the largest installed base in food retail applications and the broadest product offering. We have proactively expanded our capacity and invested heavily behind a platform-based product strategy supported by a differentiated digital go-to-market architecture that facilitates the sale and design process, reduces complexity, improves product quality, and delivers best-in-class lead times and reduces the cost for ourselves and our customers. Our recently launched platforms are gaining traction in the marketplace with several exciting large-scale CO2 conversion programs underway at key retailers with a multi-year runway. We are also benefiting from our exposure to data centers and the secular growth in infrastructure investment, with the significant power requirements of next-generation chips that support artificial intelligence adoption are now requiring liquid cooling methods.
We are exposed to liquid cooling of data centers in both our heat exchanger business, which enables heat transfer within the coolant distribution units, and in the connector business, which provides leak-free liquid connection points at the server racks and manifolds and now directly to the individual chip cooling cold plates. I'll leave the data center infrastructure market forecast to our end customers further down the chain. For us, it's clear an area of robust growth in the foreseeable future, as evidenced by our recent order trajectory and high-profile specification wins with the chip OEMs. Importantly, we have proactively installed production capacity and are well-positioned to meet any meaningful inflections in demand with industry-best lead times. The through-cycle performance of our biopharma components platform has been solid despite the well-chronicled post-COVID destocking headwinds over the past two years, with customer inventory levels now normalizing.
The long-term tailwinds for single-use bioprocessing and cell and gene therapies are compelling, and importantly, our products are specified for a regulated manufacturing environment. While our business is still below peak levels, we believe the recent booking trends and positive tone from our customers and industry partners set up for a potential upside this year. Finally, let's go to slide 10, which shows the long-term performance of our portfolio. Our playbook for earnings accretion remains unchanged to deliver growth through a combination of top-line organic growth, earnings accretion through operational execution, and returns of productive capital deployment strategy. We are pleased with the start of the year. With our flexible business model, we will continue to monitor end-market conditions and quickly respond to changes in the marketplace. Jack, let's go to Q&A.
Operator (participant)
At this time, if you would like to ask a question, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. We ask that participants limit themselves to one question and one follow-up question. We will now hear from Mike Halloran with Baird. Please go ahead.
Mike Halloran (Senior Research Analyst)
Good morning, everyone. Good morning, everyone.
Richard Tobin (Chairman, President and CEO)
Hi. Good morning. Good morning.
Mike Halloran (Senior Research Analyst)
Okay. So a couple of questions here. First, on orders. Obviously, comps are easy the next couple of quarters, but maybe just talk a little bit about the underlying perspective from an end market that gets you comfortable with the order commentary for the year, just kind of the confidence and the composition of where that order growth is going to come from from an underlying market perspective. And then related, do you see orders up sequentially going into the second quarter?
Richard Tobin (Chairman, President and CEO)
Yeah, I do. Look, we'd have to go segment by segment because they're different between the short cycle and the longer cycle portions of the portfolio. But orders are up broad-based, with the exception of the two that we highlighted, both in can making and in heat exchangers in Europe. We would expect that trend to continue, which supports basically the seasonality, where we expect some pretty big step-up in performance in Q2 and Q3. And we'll see about Q4, which will be a dynamic of how the order rates go between now and then. I think, most importantly, our confidence is based on the fact that of all the hard work we did in terms of managing inventory through the channel last year, and that's allowed us to have more confidence in terms of the order rates going forward.
Mike Halloran (Senior Research Analyst)
Makes sense.
Let me just talk about the actionability of the M&A pipeline from your perspective. Obviously, the commentary has been pretty positive about your flexibility in the short term. Yeah. How would you look at the channels as we're sitting here today and the priorities?
Richard Tobin (Chairman, President and CEO)
It's loosened, for sure. I think there's a recognition now that interest rates are here to stay. That's helpful. I think that the equity markets have rallied quite a bit, and so I think that this fear of purchase compression on multiples has gone away. But it's not a flood yet. But I think that the activity in terms of opportunities that we can look at is a lot better than it would have been a year ago today.
Mike Halloran (Senior Research Analyst)
Thanks, Scott. Appreciate it.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Our next question comes from Stephen Tusa with J.P. Morgan. Please go ahead.
Stephen Tusa (Managing Director)
Hey, guys. Good morning.
Richard Tobin (Chairman, President and CEO)
Hi.
Stephen Tusa (Managing Director)
So just on the orders comment, I guess you said SWEP really isn't picking up. Is that a bit of a reflection of kind of the EU heat pump market, that that's not really you would expect to see it by now if things were turning up there in the second half? I think you've said that before.
Richard Tobin (Chairman, President and CEO)
Yeah. I mean, we're running out of time here. So our expectation that that market will be clearly down year-over-year. I think that we've brought down even our internal estimates for this year. So I think that it's probably the one business that is not tracking to what we thought it would have been. Maybe we're a little optimistic, but we'll see. So we would have to see orders bounce back at the end of Q2 to support any kind of inflection in the marketplace in the second half.
Stephen Tusa (Managing Director)
Right. So a solid double-digit first half to second half, the way you see orders today, that doesn't sound right.
Richard Tobin (Chairman, President and CEO)
Yeah. I mean, I have to go back and look at the comps, but if you remember last year.
Stephen Tusa (Managing Director)
I mean, sequential. Sequential. Sequential.
Richard Tobin (Chairman, President and CEO)
Yeah. Yeah. Yeah. Sequentially, yes.
Stephen Tusa (Managing Director)
You don't see that as being that. That's not embedded in your current forecast now, given you aren't seeing the orders, just making sure. Okay.
Richard Tobin (Chairman, President and CEO)
That's correct. That is.
Stephen Tusa (Managing Director)
And then, just can you help calibrate us just on an EPS basis for the second quarter or however you want to however you want to talk about it? I mean, it looks like the orders are running right now ahead of the sales forecasts that are out there. Your orders are going to be up sequentially. So I mean, you look like you're covered from an orders perspective. Any further color on the seasonality of EPS for Q2, anything that influences margins in a major way or anything like that, because the sales look like they're going to be okay relative to consensus?
Richard Tobin (Chairman, President and CEO)
Yeah. I don't think that there's any change.
Stephen Tusa (Managing Director)
Okay. So what is it usually, sequentially or percentage of the year? Maybe Brad?
Richard Tobin (Chairman, President and CEO)
I think the normal season. I don't know. I'm going to get to the mathematics answer, but it's a calculator, though.
Stephen Tusa (Managing Director)
I knew you wouldn't want to answer this, so I'll go to Brad.
Richard Tobin (Chairman, President and CEO)
Yeah. Brad left the room, Steve. Sorry. I mean, look, I think the seasonality that we would expect is where we're tracking right now. So Q2, Q3 up, and then we leave some optionality in Q4. And that will, back to your question about order rates, Q4 will be depending on how we track. So there is potential upside in Q4 if order rates continue to build.
Brad Cerepak (SVP and CFO)
Yeah. Keep in mind, there's a nuance on order rates because DESTACO's now out of our order book. And Jack could take you through that, but we still see sequential up even covering DESTACO in the second quarter and through the year.
Stephen Tusa (Managing Director)
So 225-ish for Q2? Does that sound about right?
Richard Tobin (Chairman, President and CEO)
We don't give quarterly guidance. All right. Any other things?
Brad Cerepak (SVP and CFO)
Okay. That was a good one, Steve.
Stephen Tusa (Managing Director)
No. No. That's it. I guess I'll ask Jack offline. Thanks.
Richard Tobin (Chairman, President and CEO)
All right. Great. Thanks.
Operator (participant)
Our next question comes from Julian Mitchell with Barclays. Please go ahead.
Julian Mitchell (Equity Research Analyst)
Hi. Good morning. Maybe I just wanted to start off with the DCST segment. I think price down a little bit year-over-year. Was that just kind of a mixed thing, and then it comes back later in the year? On the margin front for DCST, 14% first quarter, do we just assume a sort of steady sequential ramp from that point through the year?
Richard Tobin (Chairman, President and CEO)
I think it's because of the negative effect on the heat exchanger business, which is accretive to that segment. The ramp is going to be very much predicated upon how much CO2 system volume we can get out between now and the end of the year. So I guess to answer your question, it will ramp, but you need to take into account when you're looking at comps that until we get into the back half of next year, we're going to be pushing up against the reduced volume in heat exchangers.
Julian Mitchell (Equity Research Analyst)
Got it. And on the pricing, I think it was down just a little bit in Q1. Is there sort of anything to call out there? Does it flip back to positive later in the year?
Richard Tobin (Chairman, President and CEO)
Yeah. I think it's a nit, to be honest with you. I mean, the pricing that we have out there is relatively old. It's got to be more mix-related than anything else.
Julian Mitchell (Equity Research Analyst)
That's helpful. Then just to follow up sort of more broadly when you're looking at your customers and realize there's a breadth of end market exposures, but is it your perspective that for your product at channel partners and your customers, the sort of inventories are pretty lean now for where we are in the year? Any concerns around further need for inventory reduction, or do you think we start to move the other way when you're looking at how your channel partners are behaving based on orders and so forth?
Richard Tobin (Chairman, President and CEO)
Yeah. The portions of the business that are distribution, we don't see a build. We just see pass-through right now. So one would hope that we get a little bit of build, but that'll be dependent on what we see on pull-through demand from here. So we've talked about this quite a bit, Julian. I mean, we did a lot of work and took proactive work in the second half of the year. Our distribution channel checks don't show build. We just see pass-through right now. So it's not going to be a headwind. Hopefully, if demand continues to inflect positively, there will be a little bit of a tailwind.
Stephen Tusa (Managing Director)
That's great. Thank you.
Richard Tobin (Chairman, President and CEO)
Thanks.
Brad Cerepak (SVP and CFO)
Yep.
Operator (participant)
Our next question comes from Brett Linzey with Mizuho. Please go ahead.
Brett Linzey (Managing Director)
Hey. Good morning, all.
Richard Tobin (Chairman, President and CEO)
Good morning.
Brett Linzey (Managing Director)
Hey. Yeah. Wanted to come back to Biopharma. You noted some potential upside moving through the year. Does sound like customer tone has improved there. Maybe you could just talk about some of the warranty expirations and some of the obsolescence of some of that Single-use channel inventory that could be a multiplier effect for that business.
Richard Tobin (Chairman, President and CEO)
It's all done now, right? If you went back and look sequentially at the biopharma business where shipments are heavy, where we've lapped kind of that 2.5-3-year timeline now. So there's still pockets of inventory out there, and the system builds are relatively a headwind right now. But on kind of the processing side of the business is what is inflecting forward. So we expect orders to be up from here just because of the fact that the inventory has been cleared one way or another over the last 36 months.
Brett Linzey (Managing Director)
All right. Great. And then maybe shifting over to thermal connectors, doubling of bookings, what do you think the revenue run rate is in that business by year-end? And I guess, is there any reason why this business and those applications shouldn't be growing in line with some of the liquid cooling adoption trends?
Richard Tobin (Chairman, President and CEO)
That's what we hope. I think it's, I'm not going to size it for you right now because of the competitive aspect of the end market. What I can tell you is we feel good about where we are positioned from a spec point of view. I think that we're going to be a little bit of a trailer because we're a subcomponent behind a lot of the build that's going out right now. But what I can also tell you is we have pre-built the production capacity that if it was to inflect kind of like what we saw in biopharma, we're going to be able to be there with industry-leading lead times.
Brett Linzey (Managing Director)
Thanks for the insight.
Operator (participant)
Our next question comes from Joe Ritchie with Goldman Sachs.
Joe Ritchie (Managing Director)
Thanks. Good morning. Good morning, guys. And so maybe sticking on that slide 9, I did actually get a chance to see some of your thermal connectors. Your customers were showing them off at Data Center World a couple of weeks ago. But my question is really on the CO2 systems. Rich, how far along do you think we are in terms of these regulatory tailwinds that's helping this business? And maybe just kind of maybe talk a little bit about the path from here.
Richard Tobin (Chairman, President and CEO)
Okay. We are shipping our first platform. We're going to be launching our second platform in the next couple of months. And then sequentially after that, the third platform will be launched after that. What we have right now is early adopters. So there are certain retail clients that, because of ESG reasons and a variety of other reasons, have chosen to be an early adopter in the space and not wait for the regulatory aspect of it. And then we've got a lot of customers that are buying individual units to test them out. So I think we're in the early innings here, but we like the trajectory.
Joe Ritchie (Managing Director)
Okay. Cool. No, that's great to hear. And then I know, look, you guys have referenced this biopharma. It seems like we're starting to see some green shoots here. I'm just curious, as you're kind of thinking through the margin trajectory for that business going forward, maybe just kind of help us with the path from here.
Richard Tobin (Chairman, President and CEO)
Yeah. It's a mix, Joe. So as the revenue climbs, the margin mix is important to the segment. And a way to look at it, frankly, is to look back a couple of years at the margin that we were at. And we actually didn't decline that much in consolidation because the balance of the segment portfolio actually performed quite well. So I wouldn't think about it in terms of incremental leverage on a unit basis. I would look at it more as the revenue climbs, the segment mixes up from there.
Joe Ritchie (Managing Director)
Yeah. Maybe just a quick follow-up there. So are we at a bottom then in margins for that business, expected to improve from here sequentially with any?
Richard Tobin (Chairman, President and CEO)
We never really gave up any margin in the business. What we gave up was volume. So like I said, it's not a business that you would look at decremental and incremental margins. It's just mix up, mix down as a proportion of revenue.
Joe Ritchie (Managing Director)
Got it. Okay. Great. Thanks, guys.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead.
Andy Kaplowitz (Managing Director)
Good morning, everyone.
Brad Cerepak (SVP and CFO)
Hi, Andy.
Richard Tobin (Chairman, President and CEO)
Hi, Andy.
Andy Kaplowitz (Managing Director)
Maybe just thinking about the segment level organic growth versus your own expectations, it seems relatively clear that DEP should continue to be Dover's best growth in 2024, and DCST is in the weakest. But if you look at the other segments, how are you thinking about growth versus that 1%-3% guide for the company? And were there any surprises versus your own expectations in Q1?
Richard Tobin (Chairman, President and CEO)
Okay. Let me think about it. I think that, as I mentioned earlier, the only business that is performing worse than what was baked into our original forecast is the heat exchanger business in Europe for heat pumps, which is about, on a last-year basis, about 30% of our revenue. So we're going to have to mop up some of that. Now, what we have offsetting that is CO2, right? And so I just answered Joe's questions about the trajectory of the market. And to the extent that the demand continues to be solid, we should be able to mop up some of that decline. And Belvac was always baked into our forecast. So we don't think that we'll post top-line growth in that particular segment until Belvac just basically bottoms from there, and then we'd expect to inflect positively, hopefully in Q4, depending on CO2 demand.
The balance of the businesses are tracking, by and large, exactly where we had forecast them. So really going into the quarter, as I think I mentioned when we did the full-year results, it was all about order momentum. So far, so good.
Andy Kaplowitz (Managing Director)
That's helpful. And then, Rich, maybe just on DCEF, use a little more color into the comment you made about margin up for the year after that Q1 start. I know you do have that cost-out program. So how does that flow in through the year and help you get to where you want to be?
Richard Tobin (Chairman, President and CEO)
Look, I mean, I think from a margin-heavy lifting point of view, I think that's where we've got to do the most work. I think the management team is on it. So you've seen us take some structural cost out of that business. What you need to understand is that business is, from a proportion point of view, the one that's most exposed to distribution, right? So it's had a pretty good headwind during the, let's call it, the destocking phase of 2023. So it should ramp, that is a business that we can look to that says, "Okay, incremental margin should be positive as volume flexes upward.
Joe O'Dea (Managing Director)
Helpful. Thank you.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Our next question comes from Andrew Obin with Bank of America. Please go ahead.
David Ridley-Lane (Equity Research Analyst)
This is David Ridley-Lane on for Andrew Obin. A little bit of a bigger picture question here. So you're seeing broad-based orders improvement, manufacturing PMI back above 50. If you had to take a cut at looking back, right, was there actual underlying demand weakness last year, or was it all just destocking and a function of comps? i.e., do you think the underlying trend is getting demand trend is getting better now?
Richard Tobin (Chairman, President and CEO)
The demand trend is getting better now because of the headwind from destocking in the previous comps. And then after that, then you get to idiosyncratic product lines and business and geographies. But if you want a macro comment, right, and I think that we addressed it last year, is even if you look back two years, unitary demand was relatively flat, right? There was a lot of pricing flowing through the marketplace, but the unitary demand was relatively flat. And then because of interest rates, you had a negative headwind last year in terms of destocking. So going into this year, thinking positively, let's say that we'll see about unitary demand year-over-year, whether it inflects up. But what we know categorically is that you don't have the headwind from destocking now, right, because it's just pass-through.
David Ridley-Lane (Equity Research Analyst)
And then just a quick housekeeping question. What is the share count and effective tax rate assumption embedded in the 2024 EPS guide?
Richard Tobin (Chairman, President and CEO)
You can call Jack about that. Let's not get into. I'm not going to page through all these documents looking for that.
David Ridley-Lane (Equity Research Analyst)
Thank you.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Our next question comes from Jeffrey Sprague with Vertical Research Partners. Please go ahead.
Jeffrey Sprague (Managing Partner)
Hey. Thank you. Good morning, everyone. Hey, Rich, how's it going? Hey, you addressed kind of your view on what's going on in distribution. Do you have kind of a view on what's going on with the OEM customers? If we think about Europe heat pumps, do you know one way or the other if they actually are sitting on inventory of your product, or you're just really kind of waiting for the order for kind of a view of what the underlying demand might be? So heat pumps is the one that kind of stands out, but maybe there's some others where that's kind of a question also.
Richard Tobin (Chairman, President and CEO)
They're clearly sitting on our product in inventory. So you've got kind of like you've got the market going down, and then you've got inventory with because we're a subcomponent with our partners. So we're going to go down first, I guess, is what I'm saying. We went up first when pull-through demand goes up, and everybody kind of puts inventory to allow for their estimates on the builds. And now you've got the market turning lower. And so that inventory that's out there, it's got to get depleted. So our expectation is that our demand will inflect up before the end market demand kind of bottoms.
Jeffrey Sprague (Managing Partner)
Yeah. That makes sense. Then on the liquid cooling stuff, there's a number of competitors and the like, and I don't expect you to name names. Do you have more than one or two cooling-related customers in this market? You had also indicated you were specified by the chip OEMs, not per se, but I'm just wondering if that was kind of a misspeaking and you're actually specified by the cooling HVAC-related company. I was just curious on that detail. Thank you.
Richard Tobin (Chairman, President and CEO)
It wasn't a misspeaking, but it depends on the chip, and it depends on the customer in terms of how without getting into the details about it, you do need to get specified by the chip maker who makes recommendations to the builder, right? So we did the hard work in getting specified at the upstream, but clearly, we're going to have to sell into the build channel. Ultimately, will be our customers as those units are built.
Jeffrey Sprague (Managing Partner)
It's more customers than I can count on one hand, or no? We're talking kind of.
Richard Tobin (Chairman, President and CEO)
Apparently, everybody's in the space, including us. What I can tell you is it's a unique product, number one, and number two, that the production requirements look very much like pharma. And that is good for us because we're basically building these products in not the same facility. We've got a dedicated facility for these products, but we're going to run it more or less the way we run our connector business for biopharma. So I think we're in good shape from an IP point of view, and we're in good shape in terms of production capacity.
Jeffrey Sprague (Managing Partner)
Great. Thanks for that color.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Our next question comes from Scott Davis with Melius Research. Please go ahead.
Scott Davis (Chairman and CEO)
Hey. Good morning, Rich and Brad.
Brad Cerepak (SVP and CFO)
Hi, Scott.
Scott Davis (Chairman and CEO)
Hey, guys, you were probably a little bit more skeptical than some of the others in 2024 on kind of price and ability to get more price. Can we mark-to-market that a little bit here in April? Have you been able to be a little bit more successful with price than perhaps you may have thought?
Richard Tobin (Chairman, President and CEO)
Oh, I mean, I think that we're not going to be negative on price, for sure. I would expect us to be positive to price by the end of the year. I just think that during supply chain issues and everything else, there was a little bit of salad days and price passing going on. And we weren't the big winners there, to be perfectly frank. If you go back and look at our price realization through that period, arguably, we should have taken more.
But at the end of the day, to me, that's more of a non-headwind going forward because all that capacity that got built out, if market demand is good, but it's not exactly robust, I don't think there were. I think that we're positioned appropriately that we're not going to have to give back price because there's been a lot of price take over the last 36 months.
Scott Davis (Chairman and CEO)
Yeah. Makes sense. And Rich, totally switching gears, but are you happy with the portfolio you have? It's very broad, so there's got to be good and bad. But the opposite of an expensive M&A market is the opportunity to sell things, perhaps, at above market value. So is there parts of the portfolio that you think make sense to look at departing with?
Richard Tobin (Chairman, President and CEO)
How do I want to answer that? I know that I'm on the clock, right? Did you give me 12 months? DESTACO is a good example, right, because that's a business that we looked at in terms of end market exposure and where we had taken it to from a margin point of view. We found a partner. We monetized it, I think, at a multiple that DESTACO was not trading within the Dover portfolio. So I think that that optionality remains on other pieces of the portfolio, but you need to find willing partners and the like. Is the first part of the question. The second part of the question, Scott, is if we go back to 2018, 2019, that we said that we were not just going to go around selling stuff around here to dress up margin expansion.
That's easy to do at the end of the day, but I don't think it's creating shareholder value. It's just creating optics. We've moved up the margin here substantially, right? So I think that unlike 2018 and 2019, if we were to monetize pieces of the portfolio, we were going to get a lot more than we would have then back then to the extent that we can find a willing partner there. So I understand that the complexity of the portfolio is a difficult issue from a thematic point of view, but I'm not going to apologize for the value creation that we've been able to extract from the portfolio. So we'll just retain that optionality going forward.
Scott Davis (Chairman and CEO)
That's a good answer. Thank you. Best of luck, guys.
Richard Tobin (Chairman, President and CEO)
Thanks. Thanks.
Operator (participant)
Our next question comes from Joe O'Dea with Wells Fargo. Please go ahead.
Joe O'Dea (Managing Director)
Hi. Good morning. Thanks for taking my questions. Rich, I wanted to ask about the climate orders in the quarter. Pretty notable step up and well above each quarter of 2023. So just trying to understand a little bit more what happened in Q1 versus every quarter of 2023 that brought sort of customers forward. It sounds like what you saw in terms of order levels in Q1 is more of a sustainable level moving forward. So just kind of the catalyst behind that switch from a calendar flip and much stronger demand.
Richard Tobin (Chairman, President and CEO)
Well, when you take into account that our orders are dropping in heat exchangers and down maybe not down in Belvac because Belvac built that backlog several years ago, but down in heat exchangers, the order rate is exclusively in the fact that we're launching a new product line in CO2 systems. So that's what's different.
Joe O'Dea (Managing Director)
But you wouldn't call that lumpy. You're not saying Q1 is lumpy. It's like there's sustainable demand at that level in climate.
Richard Tobin (Chairman, President and CEO)
Look, I mean, they're going to continue. Well, CO2 is going to continue to offset the heat exchanger business. Now, the heat exchanger business has easier comps once we get beyond August because I think that inflected down in September of last year. So it may be a little bit of put and take between now and then because in CO2 systems, we tend to get large orders every once in a while to flex it up and down. But over time, I think that order rates should look good from the half-year going forward, for sure.
Joe O'Dea (Managing Director)
Got it. And then just circling back to David's question, making sure I kind of understand the takeaway. I mean, it sounds like what you're seeing in order levels is really a reflection of what you see for sell-through demand. So this is sort of working through the end of destock, and this is just reflective of sell-through demand. It's not saying that sequentially from, say, 3Q to 4Q to 1Q, the demand environment has really gotten better. It's really just this is the absence of the pressure that we saw on channel reductions.
Richard Tobin (Chairman, President and CEO)
Right. That's it, right? Because if we go back last year and the decline in revenue, that wasn't a reflection of pull-through demand because it had the headwind of destocking. Now, what you have is just basically, let's just call it pass-through. So I don't see stocking. We just see it passing. Thanks.
Operator (participant)
Our last question comes from Deane Dray with RBC Capital Markets. Please go ahead.
Deane Dray (Managing Director)
Thank you. Good morning, everyone.
Brad Cerepak (SVP and CFO)
Morning.
Richard Tobin (Chairman, President and CEO)
Hi, Deane.
Deane Dray (Managing Director)
Hey, can we get on Imaging just the state of the world in consumer packaged goods? It sounded like that business is beginning to also see some normal demand. But what have you guys been seeing?
Richard Tobin (Chairman, President and CEO)
It's stable, Deane. You have some inflection up and down between the equipment side that the consumable portion is generally a steady Eddie. It doesn't flex up or down. You have a little bit of price that goes through every year. I wouldn't be too concerned on quarter-to-quarter movements because they don't tend to be very high at the end of the day, and there's a lot of FX rolling through there just because of the fact that it is truly, I think, the only real true global business that we have. So it's steady, right? We don't see an inflection up in terms of production rates and consumer products. China seems to be, which was a headwind next year, seems to sequentially be improving. So we'll see from there. But it does run up against a strengthening U.S. dollar.
Deane Dray (Managing Director)
Understood. And then just a couple of cleanup questions on the data center discussions on this call. The first is I know you've got lots of headaches with SWEP heat exchangers. What about SWEP in data centers in Europe? I know you were highlighting the U.S., but where's SWEP in data centers in Europe? And then on the connectors, are you being asked to bid on these projects for the chip makers, or is it negotiated design-in? Because that's a big differentiator.
Richard Tobin (Chairman, President and CEO)
Let me take the last question first. It's design-in. I'm sure that our commercial teams will say it's not that easy, but the fact of the matter, it is. It's design-in predominantly. Now, there will be a variety of different negotiations with the participants that are building out the infrastructure, but the most important part, it's kind of win the spec business early on, and then we see where we go from there. Data centers in Europe, I'm going to have to get back to you. I don't think it's meaningful. I think that the data center activity that we see is more North American-based.
Deane Dray (Managing Director)
That's real helpful. Thanks.
Richard Tobin (Chairman, President and CEO)
Thanks.
Operator (participant)
Thank you, ladies and gentlemen. That concludes our question and answers period and Dover's first quarter 2024 earnings conference call. You may now disconnect your lines at this time and have a wonderful day.