Dover - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong profitability despite flat top line: adjusted EPS rose 19% to $2.05, adjusted segment EBITDA margin reached 24.0%, and total segment earnings margin was 22.0%. Revenue declined 1% to $1.87B (+0.5% organic after FX and M&A), primarily due to prior-year disposition effects and currency.
• Versus consensus, Dover posted a modest beat on adjusted EPS ($2.05 vs $1.98*) and slight misses on revenue ($1.866B vs $1.876B*) and EBITDA ($393M vs $399M*) as reported by S&P Global; book-to-bill was above one across all five segments, underpinning Q2 visibility.
• Management modestly trimmed 2025 guidance to GAAP EPS $8.04–$8.24 and adjusted EPS $9.20–$9.40 (from $8.16–$8.36 / $9.30–$9.50), citing tariff uncertainty and mechanical top-down adjustments; FX could be a tailwind offset, and pricing actions are underway to mitigate tariffs.
• Key catalysts: secular growth in single-use biopharma components and thermal connectors (liquid cooling for data centers) and strength in CO2 refrigeration systems; backlog already covers a majority of Q2 revenue.

What Went Well and What Went Wrong

What Went Well

• Margin performance was exceptional: adjusted segment EBITDA margin up 240 bps YoY to 24.0%, with four of five segments expanding >100 bps, driven by mix shift to high-margin platforms and structural cost actions.
• Secular growth engines accelerated: double-digit organic in single-use biopharma components and triple-digit growth in thermal connectors for data center liquid cooling; imaging and identification grew organically with robust margin execution.
• “Q1 was a good quarter… Adjusted EPS up 19%… record Q1 adjusted EBITDA margin at 24%… book-to-bill north of 1 across all five segments” — CEO Richard Tobin.

What Went Wrong

• Top line was slightly lower: revenue down 1% to $1.87B (total -0.9% including FX, M&A, dispositions), with Engineered Products revenue down YoY and continued weakness in food retail door cases and engineering services within Climate & Sustainability Technologies.
• Vehicle Services (Engineered Products) faced tariff exposure and pricing actions that weighed on volume; management is cautious on potential second-half project “drift” as customers digest tariff developments.
• Adjusted EPS beat was not broad-based: revenue and EBITDA modestly missed S&P Global consensus*, indicating demand normalization and FX/disposition headwinds despite mix and cost offsets. Values retrieved from S&P Global*.

Transcript

Operator (participant)

Good morning and welcome to Dover's first quarter 2025 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Chris Woenker, Senior Vice President and Chief Financial Officer; and Jack Dickens, Vice President, 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 then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. 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'd now like to turn the conference over to Mr. Jack Dickens. Please go ahead.

Jack Dickens (VP of Investor Relations)

Thank you, Margo. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through May 15th, 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 disclosed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn this call over to Rich.

Richard J. Tobin (President and CEO)

Thanks, Jack. Good morning, everybody. Let's go to slide three. Q1 was a good quarter. Adjusted EPS was up 19% over the prior year on excellent incremental margin conversion driven by a healthy mix from our growth platforms, prior period structural cost actions, and positive price-cost dynamics. Adjusted EBITDA margin was up 240 basis points to 24%, a record result for Q1, with four of five segments posting over 100 basis points of comparative margin expansion. Importantly, organic bookings were up for the sixth consecutive quarter, with book-to-bill north of one across all five segments, resulting in a sizable portion of Q2 revenue already in backlog. Overall, we are very encouraged by the start of the year. All of our efforts on portfolio construction, new product introductions, and methodical cost and productivity actions are driving meaningful improvement in segment profitability and durable long-term top-line resilience. Let's go to slide five.

Engineered Products was down in the quarter on lower volumes in Vehicle Services and program timing in aerospace and defense. We intervened on the cost structure of Vehicle Services to support its margin performance going forward. Engineered Products, and specifically Vehicle Services, are the most exposed to tariffs of Chinese imported subcomponents, in our case, structural steel. We are out with pricing mitigation actions, but we will keep a close eye on volume. The segment will be bolstered as the year progresses by calendarization of our aerospace and defense business. With the divestitures of DESTACO and Environmental Solutions Group in 2024, our Engineered Products segment now accounts for 15% of our total portfolio, down from 25% in the prior year. Clean Energy & Fueling was up 2% organically in the quarter, led by strong shipments in clean energy components, fluid transport, and below-ground retail fueling equipment.

Robust order activity in below-ground retail fueling signals a recovery after two years of lower volumes, a welcome outcome. We are also encouraged by the increasing quoting activity in clean energy components, particularly in recent wins in space launch and LNG infrastructure in the U.S. and Europe. Margin performance was robust in the quarter, up 180 basis points on a higher mix of below-ground fueling equipment and tight cost controls. We expect this segment to be the leaders in margin accretion in 2025 on volume leverage, pricing, and SKU management and positive product mix. Imaging and ID posted another solid quarter with organic growth, 4% on strong wins in serialization software and broad-based growth in core marking and coding across all geographies and product lines. Margin performance was robust as management actions on cost to serve and structural cost controls continue to drive incremental margins higher.

Pumps & Process Solutions was up 7% organically on double-digit growth in single-use biopharma components and triple-digit growth in thermal connectors for liquid cooling of data centers. Precision Components and industrial pumps also had solid results. As forecasted, the long-cycle polymer processing equipment was down year-over-year in the quarter. Segment revenue mix and volume leverage drove margin improvement on excellent production performance and volume growth in biopharma and thermal. The outlook for the rest of the year is favorable in Pumps & Process Solutions, biopharma components, and thermal connectors should continue their robust growth trajectories on secular themes and single-use biological drug production and liquid cooling of data centers. Our precision components business has a healthy exposure to the gas and steam turbine markets, which are performing well.

Revenue was down in the quarter in Climate & Sustainability Technologies and comparative declines of food retail door cases and engineering services, which more than offset the record quarterly volumes in CO2 systems. We are encouraged to see year-over-year growth in our heat exchanger business for the first time since the fall of 2023. Shipments of heat exchangers for installation in European heat pumps still faced poor COP in Q1, but were up sequentially from Q4. Despite the lower top line, the segment posted 120 basis points of margin improvement and year-over-year growth in absolute earnings on productivity actions and a higher mix of CO2 systems.

We expect improvement of segment performance of the balance of the year on the strength of CO2 refrigeration systems, robust growth in heat exchangers for liquid cooling of data centers, and a continued recovery in heat exchangers for European heat pumps on improving end-customer sentiment and normalized channel stocking levels. I'll pass it to Chris.

Chris Woenker (Senior VP and CFO)

Thanks, Rich. Good morning, everyone. Let's go to our cash flow statement on slide six. Our free cash flow in the quarter was $109 million, or 6% of revenue. This was a $3 million increase when compared to the first quarter of last year. Higher earnings and improved working capital performance were partially offset by the expected increase in capital spending on growth and productivity projects. The improved working capital performance was driven by strong collection activity, positively impacting our accounts receivable balance, partially offset by investments in inventory ahead of seasonally stronger volume quarters in Q2 and Q3. The first quarter is traditionally our lowest cash flow quarter of the year. Our guidance for 2025 free cash flow remains on track at 14%-16% of revenue on strong conversion of operating cash flow. With that, let me turn it back to Rich.

Richard J. Tobin (President and CEO)

I'm on slide seven. Here we provide a little more detail on the bookings in the first quarter. Q1 marked our sixth consecutive quarter of positive year-over-year organic bookings growth, posting a book-to-bill above one. As shown in the segment detail on the right, the booking rates were broad-based with strength in our secular growth, exposed markets, and an encouraging trend as we move through the year. Let's go to slide eight, which highlights several of the end markets that were driving our consolidated organic growth forecast. Between end market data, our customer forecasts, and our booking rates, we are encouraged by the outlook in the broader industrial gas complex within clean energy and precision components, single-use biopharma components, CO2 refrigeration, and inputs into liquid cooling applications of data centers, which include our connectors as well as heat exchangers.

We have made significant organic and inorganic investments behind these end markets. Over 75% of the acquisition capital we've deployed over the last five years has been behind these markets and remains some of our highest priority areas of investment moving forward. In aggregate, these markets now account for 20% of our portfolio and drive attractive margin accretion on expected double-digit growth. Moving to nine, our organic investments remain our highest priority for capital deployment. We will continue to invest behind our existing businesses regardless of the near-term fluctuations in the macro sentiment. Here we show some of the most meaningful and high ROI projects for 2025. You'll see a healthy balance between growth capacity expansions behind some of our highest priority platforms, as well as productivity and automation investments, including some rooftop consolidations.

As the rooftop consolidation projects are completed in the second half, we will provide the roll-forward benefit of the reduction of fixed costs. Going to slide ten, this slide delineates our current tariff exposure. Clearly, this is a bit of a moving target, and these are annualized costs based on 2024 volumes. Nevertheless, it gives you the current situation and the prevailing tariff rates. Takeaway here is that we are a proximity manufacturer, and the costs are embedded in our guidance. I leave the rest to Q&A, where I'm sure we'll beat this to death. Let's go to slide 11. We have modestly trimmed our revenue and EPS guidance ranges for the full year to reflect uncertainty of the demand environment in the second half of the year because of the ongoing tariff negotiations. This is purely a top-down mechanical adjustment at this point.

Based on the trends in our order rates together with our backlog levels, we are in really good shape for Q2, but I think it's fair to say uncertainty in the tariff environment will have some impact on medium-term demand. As a note, we set our forecast using prevailing exchange rates at the beginning of the quarter and have not adjusted our forecast for any fluctuations in foreign exchange since then, particularly the euro/dollar rate. Clearly, at current spot rates, the translation headwind is reversing to a tailwind, with the euro rallying over 5% against the dollar in the past month. Due to the short-term volatility in foreign exchange, we have chosen to wait until the end of the second quarter to see where it settles. A final note on the current environment tariffs.

Like any changes that occur in the macro environment, there's a tendency to focus on the negative implications. While we have spent countless hours over the past month on tariff costs and the supply chain implications by business and region and developing mitigation plans, one must not ignore evaluating competitive positioning. We are a proximity manufacturer with our cost and revenue base aligned. We have manageable supply chains. We will implement solutions to offset the cost implications of tariffs, and we'll push hard for market share gains where we believe we are strategically advantaged, be that on a cost or geographic footprint basis. Dover proved during the pandemic that it can play defense and defend margins in a challenging demand environment.

We entered this year with exceptionally good momentum from a product and portfolio perspective and an advantaged balance sheet position that allows us to opportunistically play offense in capital deployment. We will weather this tariff tumult, and I would argue that our business leaders are positioned far more on offense than defense at present. Let's go to Q&A.

Operator (participant)

Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, that is star 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. With that, we will take our first question from Jeff Sprague with Vertical Research. Please go ahead.

Jeff Sprague (Managing Partner)

Hey, thank you. Good morning, everyone. Yeah, Rich, let me start the dead horse beating here. Just on the tariff side, I wonder, I guess this question, there's going to be some fungibility, right, in what you do on cost. But I'm trying to get a sense of what you're doing new incremental to offset tariffs versus what you already had in flight. I mean, it sounds like the $60 million reshoring thing you called out is one of them. Just thinking about sort of the cost versus pricing dynamics that you're doing here, and again, how much might have been sort of in the plan now and is going towards tariffs as opposed to potentially upside that we could have had to 2025.

Richard J. Tobin (President and CEO)

Yeah. I think when we were doing all the conferences in the quarter, it was all Mexico and Canada, then we saw this Chinese issue with the rate. It was a little bit of a surprise, to say the least. As I mentioned in the commentary, where we have the exposure, we're out in the market with pricing presently. There's a little bit of a lag effect depending on where we are from an inventory position. Yeah, we'll cover that largely with price. Back to what I said at the end in terms of competitive positioning, there are instances where we believe that we're advantaged, meaning that a smaller proportionality of our bill of materials is subject to tariffs. In cases like that, we will take advantage of the cost position that we have vis-à-vis some of our competitors that have been importing built-up units.

If you take a look at the chart on 10, I mean, other than China, that's the big number. And of that big number, $60 million is on one particular product line. That product line, you can see in our first quarter results, we've been a little bit careful. That's why the volume's down, because we wanted to get the pricing out there. I know the question's going to come in the Q&A here, well, why are you taking revenue down if all the pricing is coming through, as I mentioned before? I mean, the risk here is not price cost. I think that we've got tailwinds on mix, and I think that we're on the front foot in terms of getting the price out there. It's volume, right? It's volume in the second half. I think that, look, I did it.

It's not in our forecast, and it's not built into the spreadsheet. I basically said, let's clip off about 1% because we're probably going to have project drift because of all the delay that we've seen around these tariffs.

Jeff Sprague (Managing Partner)

Thanks for clarifying that. Just to kind of pick up then, as you mentioned, kind of on the conference circuit, right? Through January and February, things seem to be progressing better. It sounded like March was okay, or maybe better than okay, given the book-to-bills. Maybe just kind of talk about how you exited the quarter. Did you see any sort of behavior change anywhere from your customer base kind of post the April 2 announcements?

Richard J. Tobin (President and CEO)

Yeah. I mean, look, the incremental margin in the quarter was phenomenal. I guess I think I would argue we probably outperformed a little bit there because the margin mix was so healthy. Yeah, the order rates, I think, like you talk to clients, like I said before, I mean, there's this view of, yeah, we want to do the projects, but everybody's kind of getting nervous a little bit, and there's a little bit of a drift there, to say. In terms of our order rates and our shipment rates, we actually accelerated through the quarter. Like I said, that's why I'm making it, it's a sentiment adjustment I'm making, not tangible data of customers saying, yeah, I was going to probably want it in Q2, but now I want it in Q3, that type of thing.

Our Q2, based on our backlog, should be right on what our forecasts were going through Q1.

Jeff Sprague (Managing Partner)

Got it. Thanks. I'll leave it there. Appreciate it.

Richard J. Tobin (President and CEO)

Thanks.

Operator (participant)

Our next question comes from Andrew Obin with Bank of America. Please go ahead.

Andrew Obin (Equity Research Analyst)

Yeah, thanks so much. Just a question about bookings. You've highlighted six consecutive quarters of year-over-year bookings growth. The second quarter comp is tougher, and I do appreciate that on a two-year stack, it's maybe not as tough. How should we think about just sustainability of bookings growth? I do appreciate that there may be an air pocket on bookings related to tariffs, but maybe near term, how do you see that?

Richard J. Tobin (President and CEO)

I would expect to be over one for Q2. That's my expectation right now. Look, we get crazy about this. Bookings are a little bit lumpy sometimes, and a lot of it is predicated on what happens in the last week of the quarter. I wouldn't flip out if somebody goes below one. Right now, based on the momentum that we have on bookings going into the quarter and what we know we're quoting on and stacking up there, it should be okay by the time we get to the end of Q2. Like I said, we're going to see if we can plow through negative sentiment over the next whatever many days we have left here, 65 or eight days left in the quarter.

Andrew Obin (Equity Research Analyst)

Gotcha. As we think about just sort of your just pure math on removing percentage point of volume, but then also EPS impact, if you put it together with the beef, we sort of get decrementals on revenue, sort of around 40%. Obviously, then there is this effects cushion. Should we just think it as sort of margin of safety that you have built into forecast, or there is sort of signs to this 40% decremental number?

Richard J. Tobin (President and CEO)

There's not.

Andrew Obin (Equity Research Analyst)

More precise signs.

Richard J. Tobin (President and CEO)

It was mechanical in nature, and it was basically $100 million revenue at 38% margin or something like that.

Andrew Obin (Equity Research Analyst)

Okay. Okay. Exactly. Thanks so much.

Richard J. Tobin (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, guys, and welcome, Chris, to the call.

Chris Woenker (Senior VP and CFO)

Thanks.

Scott Davis (Chairman and CEO)

Rich, the other kind of second derivative of all this chaos is potentially M&A valuations getting a bit lower. Is that something you're kind of, I mean, it's probably a little too early to say you're seeing signs of it, but is it something you're anticipating?

Richard J. Tobin (President and CEO)

We've only had one meaningful transaction in multi-world, and the valuation was pretty robust at the end of the day. I can tell you anecdotally that I'm aware of a few processes that have been pulled because of uncertainty. Maybe we're going to have to wait until we get a little clarity on the tariff tumult, and then we'll see when assets come back and the like. I will tell you for ourselves, we're working on a bunch of stuff. A lot of it is proprietary, so it's not in kind of like the public domain of kind of whisper stuff out there. Will valuations come down? I guess so. Not from what we've seen, but we've just got such a limited amount of data so far that it's hard to tell.

Scott Davis (Chairman and CEO)

Yeah. That does not surprise me. Hey, not to climb in a minutiae here, but would you be willing to share the actual growth rate in the thermal connectors that you had in the quarter?

Richard J. Tobin (President and CEO)

I think that we said it was up 50%, I think, something like that.

Chris Woenker (Senior VP and CFO)

I didn't say that. Over 100%.

Richard J. Tobin (President and CEO)

Oh, excuse me. It was over 100%. Comparative growth, not sequential. That would be comparative.

Scott Davis (Chairman and CEO)

That's a big number. All right. I'll pass it on. Thank you, guys. Good luck.

Richard J. Tobin (President and CEO)

Thanks.

Operator (participant)

Thank you. Next, we'll go to Steve Tusa with JPMorgan. Please go ahead.

Steve Tusa (Managing Director)

Good morning.

Richard J. Tobin (President and CEO)

Hi.

Steve Tusa (Managing Director)

Can you opine on what your second quarter internal plan roughly looks like?

Richard J. Tobin (President and CEO)

No.

Steve Tusa (Managing Director)

Okay.

Richard J. Tobin (President and CEO)

It's embedded in our full-year guidance.

Steve Tusa (Managing Director)

Okay. Does it look like it's around consensus?

Richard J. Tobin (President and CEO)

Yep.

Steve Tusa (Managing Director)

Okay. Just on your kind of tariff mitigation, I mean, everybody's kind of giving a little bit of color on the split of what they're planning to do. I mean, should we think about it as, first of all, how much of a hit will it be in the near term? I assume you're going to kind of work through it in the third and the fourth quarter. How much of that is price and how much is kind of these mitigation activities?

Richard J. Tobin (President and CEO)

Okay. Look, clearly, if we put all the regions into the manageable category with the exception of Chinese imports, just if you look at the quantum on the slide, we can make up a variety of different ways, whether it's productivity or price or hopefully both. On the China one, we will make up largely in price, but I will tell you that we are aggressively negotiating with our suppliers in China about what the split is. A couple of things. I get that the percentage tariff rate right now is extremely high. I do not believe that that is going to last for the balance of the year. This is just math, number one.

Number two, like I said, whether we take the full brunt of the tariffs or not, that is up to our negotiations between what little bit of supply base that we have in China left and our vendors and ourselves. I can tell you that anecdotally, at worst, we will share it.

Steve Tusa (Managing Director)

Okay. Just one last one. You said it was kind of like a top-down approach. I mean, $0.10 is kind of rounding error in the end. What is your macro assumption to a degree? I mean, why not $0.20? Why not $0.30? What is your—I am just trying to get a gauge of how well you can manage in the context of a downside economic scenario. What are you actually thinking from a top-down? Or was it just like, "Hey, you know what? $0.10. Let's just strip it out"?

Richard J. Tobin (President and CEO)

Yeah. It was mechanical at the end of the day. Like I said in the commentary, what I could have done, I could have given you a bridge and then rerun FX and said, "Damn, the torpedoes were holding guidance for the year." I do not know what the derivative of the demand environment is going to be in the second half. It was not like we ran Q3 and Q4 casts into these types of scenarios. I just basically clipped it right off the top. Now, do I have a variety of different measures baked in there? Sure. Is all the pricing that we have assumed, the incremental pricing, is that assumed in our forecast right now? No. Right? To the extent that it sticks and volume remains where we think it is going to be, that is upside. I do not want to beat the FX thing to death.

I would tell you that Q1 corporate costs were high, and we do not expect that to repeat over the balance of the year. There is a variety of different items that we have. What I can say is, I think what we have proven in the past is in a downside scenario, we can flex our cost base relatively quickly.

Steve Tusa (Managing Director)

Got it. I won't ask about the torpedo reference, but thanks a lot.

Richard J. Tobin (President and CEO)

Yeah.

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 push you a little bit, Rich, on the organic sales assumption. Because I understand you've taken a more cautious view, but you're not seeing anything yet that's concerning from customers. In the first quarter, your organic sales were up overall around a point, and the full year is guided at the midpoint up 3%. I understand you've sort of lowered the original assumption for organic sales growth for the year, but it's still an acceleration versus the first quarter. Maybe help us understand which businesses you're most confident in will see that step up in growth, please.

Richard J. Tobin (President and CEO)

Julian, as you know, if you go back and look at the seasonality of our portfolio, we tend to be relatively low growth and build inventory in Q1 and then step it up in Q2 and Q3. Q4 is always a little bit depending on what our view is about the following year, whether we run production performance. You have heard that speech before. Seasonality says that we should jump in Q2. Like I said, Q2, from a backlog perspective, we can see it. Unless we start getting cancellations around here, I think that we are confident in terms of what the step-up is in Q2. We will watch order rates going through Q2, which will give us clarity on the top line for Q3, but it is a little bit early to tell.

I do not even think we have even anecdotal data yet as we are in Q2 right now, but I am not hearing anybody squealing that their order rates are falling off a cliff. We feel really good about Q2 because of the backlog. That would support what our assumptions were for Q2. Basically, what I did was trim off the back end of the year just because we need to get some visibility.

Julian Mitchell (Equity Research Analyst)

That's helpful. Thank you. Just a second question on the operating margins and the tariffs. Just to understand, is the main assumption that the net dollar tariff effect for the full year is around zero? Just if that's a firm-wide number, is there any aspect whereby you maybe are negative in a given quarter? Any color on which segment you think might have the biggest tariff risk?

Richard J. Tobin (President and CEO)

How do I want to respond to that? Okay. I understand what you're saying, right? If we were net neutral for pricing and tariff cost, it's diluted margins. That has an underlying assumption of, first of all, if you look at those numbers and you back out that the Chinese number is a full-year number, we've already got a quarter under our belt that didn't exist, and we don't expect it to last for the balance of the year. What are we talking about here at the end of the day in terms of if that was the scenario? To me, that gets eaten up in mix in every segment, maybe with the exception of market mismatch, which it's relatively easy to calculate at the end of the day.

I'm not if any kind of movement in margin is going to be on intrasegment mix, far more on price cost because of tariff.

Julian Mitchell (Equity Research Analyst)

That's great. Thank you.

Operator (participant)

Next, we're going to take our question from Michael Halloran with Baird. Please go ahead.

Michael Halloran (Senior Research Analyst)

Good morning, everyone.

Richard J. Tobin (President and CEO)

Good morning.

Michael Halloran (Senior Research Analyst)

Could you just give any thought process on if you're seeing any difference between your OpEx, steady-state consumable-type businesses, versus more your CapEx, longer-cycle type pieces in terms of orders or commentary from customers at this point?

Richard J. Tobin (President and CEO)

Yeah. I mean, the CapEx ones are the ones we're keeping a close eye on, right? The volume churn, maybe that's not the right word, on kind of the flow businesses. We just watch that on a daily basis, and then we just take a look at it. The ones that we really got to keep a look on is our customers' CapEx projects that we are a precursor or a component supplier into it. That is where the concern is. Is everybody just going to keep going along, or are we going to run into a situation of, "I'm worried about the macro, and I want to see some clarity," and the things get delayed a little bit? That is the part that we're working on the most.

That's really the reason that we gave a little bit of haircut to the total volume for the year, because if you get another month or so of drift, you're not going to be able to make it up in the balance of the year. Clearly, right now, the flow portion of the business is going well, but we'll keep an eye on it. The one that we really got to pay attention to is customer CapExX, where we're a supplier into it.

Michael Halloran (Senior Research Analyst)

Is the implication there, Rich, that you're seeing a little bit of drift in the CapEx piece, or you're just worried that the drift will come?

Richard J. Tobin (President and CEO)

I'm worried. Right. I can't see it in the order rates, right? We just have anecdotal conversations with all of our business leaders that are talking to these customers, and all the customers are saying, "No, no, everything's on path. Everything's on path." Experience says, when you get into a situation like this, could you get some drift? Sure. Right? Is it going to be meaningful over the long term? It's irrelevant at the end of the day, but we're just trying to be prudent.

Michael Halloran (Senior Research Analyst)

Yep. Nope. Makes sense. Just on the inventory side of things, how would you characterize your inventory? Your content in the channel, how would you characterize that inventory level?

Richard J. Tobin (President and CEO)

I think we did a great job at inventory. We actually have more inventory than we would like, but I think we were on the front foot of bringing in a bunch of inventory, either because of issues around tariffs or buying forward, because metal pricing was quite good for us in Q4. We basically had our businesses postured going into this year of, "Let's stack up on some inventory because if demand is good and we get the top line of 5%, let's make sure that we're able to work the supply chains and everything else," because we know we can bleed it off in the back half of the year anyway.

Right now, with the one exception on the structural steel around Vehicle Services Group, which we will take our time because it may be prudent to wait to see if we get a tariff settlement and then just catch up on the volume in the back end of the year, that's the only one I can think of where we're being careful around tariffs as it relates to inventory.

Michael Halloran (Senior Research Analyst)

Makes sense. Really appreciate it. Thanks.

Richard J. Tobin (President and CEO)

Thanks.

Operator (participant)

We'll take our next question from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe (Managing Director)

Thanks. Good morning. In the spirit of sweating the small stuff here, if we look at the top-line guide, the point cut to the top line, if we decompose that between price and volume, is there a two-point cut to volumes and maybe a point higher price to offset the tariffs? If we then take that thought a little bit further, would that mean maybe a three to four-point cut to the volumes in the back half of the year? Just trying to judge how conservatively you're positioned in the back half of the year.

Richard J. Tobin (President and CEO)

Nigel, I don't know. Right? Like I said, it's a mechanical adjustment. It's not a spreadsheet where we basically said, "Let's see all the price increases," and then on static volume, it is more or less, "Let's just take 1% off at current conversion margin and be done with it." I can't predict mix from a portfolio this diverse over the next three quarters and split it between price and volume. If volume stays at what we thought it was going to be going into the year and we get price, right, then clearly that's some upside. Getting all this price, is that going to have a detriment on volume? Who knows at this point? Right?

I think that we need to get through another quarter here and maybe get some clarity of where we are on this tariff tumult, and then we can start breaking this down into individual cells on a spreadsheet, but it's inclination rather than some mathematical adjustment.

Nigel Coe (Managing Director)

Okay. No, that's very clear. Thanks, Rich. Just a couple of quick ones. PPS margins obviously were great. Normally, 1Q is the low point. I realize mix is an issue, but would you expect 1Q to be the low point for PPS? Did we detect a glimmer of hope in European heat pumps? Just any thoughts there?

Richard J. Tobin (President and CEO)

Yeah. It's a glimmer of hope. Sequentially up, if you remember, our orders were up in Q4 on heat pumps, I mean, albeit off a pretty low base. European heat pumps has outperformed our internal forecast for the last two quarters. We'll take it as good news there. Now, that's being augmented by the fact that brazed plate heat exchangers go into a variety of different applications. Yes, we were seeing orders, which is good news because that means that the inventory in the system has been largely depleted at this point. What was the first question?

Nigel Coe (Managing Director)

The PPS margins.

Richard J. Tobin (President and CEO)

Oh, PPS margins. I think you got to be careful with that because Maag was down because it had a bad comp. As Maag and DPC come up, they're great margin businesses, but they're dilutive to that. I think it'd be a little careful about whether that thing keeps going up. I hope it does, but you do have a mixed effect on the balance of the portfolio. You have to be a little bit careful.

Nigel Coe (Managing Director)

Okay. Thanks, Rich.

Richard J. Tobin (President and CEO)

Yep.

Operator (participant)

Next, we'll go to Joe O'Dea with Wells Fargo. Please go ahead.

Joseph O'Dea (Managing Director)

Hi. Good morning. Can you just expand on the proximity manufacturer considerations here? Where in the business you would have some of the bigger advantages? Any positions where you would view yourself as being a little bit disadvantaged?

Richard J. Tobin (President and CEO)

Not without giving out a lot of proprietary information about our view of the competitive stack by business. I can just tell you that we have competitors that import fully built-up units of product that compete with us where we manufacture in the United States, and maybe have subcomponents that are imported, but as a percentage of the bill of materials, it is significantly lower. We are on the lookout to take advantage of that, and that will all be around pricing, right? Because everybody is going to go out a bunch of pricing and the signaling, and then you are going to max, then you are going to start doing the calculations between market share gains and price cost and a variety of things like that. We do that work every year around here.

When things like this happened or when it happened back in 2020, we have different strategies by business relative to the cost basis of their competitors.

Joseph O'Dea (Managing Director)

On vehicle lift, just to expand on that dynamic a little bit to try to understand how much is you're managing the timing of demand for moves in the manufacturing base versus underlying CapEx demand trends where there's a little bit of a pause. It doesn't sound like you're seeing much pause in the businesses, but just trying to understand how you're managing timing.

Richard J. Tobin (President and CEO)

Yeah. If you remember how this whole tariff thing lifted off, it was all around auto and all around NAFTA, and auto is the one that bore the brunt of it, number one. Number two, we had big discussions, it seems like a long time ago, it's probably like 60 days ago, about the consumer and inflation on the consumer. This is a particular product that, unlike the vast majority of our portfolio, has got auto and consumer exposure. You would expect the reaction there to be the quickest, and we've seen that in terms of volume. Coupled on that, now we've got it happens to be the one business that we have that's got a higher exposure in terms of imported components, particularly from China. Some of that is market, and some of that is self-inflicted from a timing point of view.

We put a bunch of pricing out there, and we'll see what happens in terms of demand and price cost going forward here.

Joseph O'Dea (Managing Director)

Got it. Thank you.

Richard J. Tobin (President and CEO)

Yep.

Operator (participant)

We'll take our next question from Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie (Managing Director)

Hey. Good morning, guys.

Richard J. Tobin (President and CEO)

Joe.

Chris Woenker (Senior VP and CFO)

Morning.

Joe Ritchie (Managing Director)

I know you don't want to give us a 2Q guide, but let me just kind of ask the question on organic growth because it is the one quarter that you guys have a great deal of visibility on. Is it fair to say that the growth rate you're expecting at this point in 2Q would be above the 2%-4% range for the year?

Richard J. Tobin (President and CEO)

No. I don't think so.

Joe Ritchie (Managing Director)

Okay. Okay. Within the range?

Richard J. Tobin (President and CEO)

Yeah.

Joe Ritchie (Managing Director)

Fair enough. Okay. I wanted to just ask a question. I know we do not usually spend a lot of time on DII, but I think I heard you say that you expect it to be the greatest margin expansion story from the segment perspective this year. Just talk us through some of these structural cost actions that are occurring in the business and maybe what ballpark expectations are for margins this year.

Richard J. Tobin (President and CEO)

Let me answer the DII question. That's not where we expect the largest margin expansion. That would be in clean energy and fueling where we expect the largest absolute margin expansion from a year-over-year point of view. Now, DII, on the other hand, if you go back and look historically in terms of margin, I'm doing this out of my head, but it almost seems like it's about 100-125 basis points of margin expansion per year over the last five years if you strip out kind of COVID year where it's all over the place. Not to take away anything from the management team of DII, which has done a fantastic job in terms of their cost to serve on relatively lower single-digit volume growth that the absolute profit or cash flow generated by that business has been exemplary.

On the clean energy side, that's where we've done the restructuring the prior year. You have the roll forward. What we tried to signal here on that slide about our CapEx projects, we told you that we're doing a bunch of acquisitions and that we were going to begin to intervene on the footprint in 2025. We're ready to get that all kicked off. As we kick it off, largely in the back half of the year, we'll give you the restructuring charges, and we'll give you the roll forward benefit going into 2026. It is a combination of volume that we're getting. We got a really healthy mix as opposed to the previous year in that segment. You have roll forward restructuring benefit this year and another set of roll forward coming for next year. We're going to get that business to 25% EBITDA margin.

Joe Ritchie (Managing Director)

Got it. Super helpful. Thanks for the clarification.

Richard J. Tobin (President and CEO)

Yep. Thanks.

Operator (participant)

Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Andrew Kaplowitz (Managing Director)

Hey. Good morning, everyone.

Richard J. Tobin (President and CEO)

Hi.

Andrew Kaplowitz (Managing Director)

Rich is following up on DPPS. You mentioned a tough comp at Maag in Q1, and pumps and process still put up 7% revenue growth and over 30% margin. I think given Maag comps get easier now in Q2, does pumps and process potentially continue to accelerate here? I think you said in the recent past that biopharma was trending up higher than your low teens forecast for 2025. I think today you talked about thermal connectors up triple digits. Are those businesses going to continue to run hotter for the rest of the year, do you think?

Richard J. Tobin (President and CEO)

Not at the rate that it's going at. I mean, we're kind of in the lift-off phase. It's going to look, if we can post 35% operating margins and 7% growth in the balance of the year, it would be a fantastic result. I think just the compounding effect of that growth just gets tougher and tougher, and you run into market limitations and capacity limitations of the market at the end of the day. I think that we're really, really. The gain on share of those particular product lines in the two sides, but I don't think let's not overlay something that's not realistic in terms of an acceleration from here.

Andrew Kaplowitz (Managing Director)

It's helpful. Maybe just looking a little more closely at DCEF because I think in the recent past, you've mentioned you expect your cryo-related businesses not seeming to grow double digits. What are you seeing there? I know you were forecasting mid-single digit for the year. Last quarter, you started at 2%. That's obviously not bad, but is there anything holding that business down on the revenue?

Richard J. Tobin (President and CEO)

Yeah. That's got a lot of that's got a flow portion of the business, and then it's got a project-related portion of the business. The flow part of the business is doing well when we talk about the cryogenic component side of it, and then you've got project side, right? The project side is the whole retail fueling side is project-related, which we did terrifically, which drove the margin in Q1. We expect that to kind of go through, but we have to be a little bit cautious on the project side because that goes into that's customer CapEx at the end of the day, and we're trying to get some clarity of where we go from there.

The setup itself in terms of the margin mix of where the demand's coming from and the structural cost takeout makes us feel pretty good no matter what the back half dynamic is in that particular business.

Andrew Kaplowitz (Managing Director)

Appreciate the color.

Richard J. Tobin (President and CEO)

Yep.

Operator (participant)

Our last question comes from Brett Linzey with Mizuho. Please go ahead.

Brett Linzey (Managing Director)

Hey. Good morning. Thanks. Just want to come back to price. The incremental price not fully baked in the guide, but I guess in terms of what you've announced to the channel and customers, do you have all the price out there that you need to mitigate the tariffs for this year?

Richard J. Tobin (President and CEO)

I hope so. If we could get some clarity on what the tariffs are actually going to be for the year. We just put out pricing last night. I got an email. I think the vast majority of it, it's out there, but it's a little bit of a moving target under the current circumstances. Price is always signaling at the end of the day, and there's a lag time in price. It is not as if we raise prices tonight. We have to burn the backlog off and you know the drill. I think everything that we know about is out there. We will see about realization.

Brett Linzey (Managing Director)

Yep. Makes sense. Maybe just shifting back to FX. Headwind flipping to a tailwind here, and understandably, there's the gyrations. You do not want to mark to market. I guess if you were to strike the line today, how are you thinking about the net impact with all the hedges and everything in terms of the tailwind at today's rates?

Richard J. Tobin (President and CEO)

I think the last time we ran it, for what we trimmed out of the guidance, we'd put it right back on FX. Yep. Believe it or not.

Brett Linzey (Managing Director)

All right. Got it. Yep. Thanks a lot.

Richard J. Tobin (President and CEO)

Thanks.

Operator (participant)

Thank you. That concludes our question-and-answer period and Dover's first quarter 2025 earnings conference call. You may disconnect your line at this time and have a wonderful day.