BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - DOVER CORP

Explicit Guidance:

• Revenue Growth: Expecting 4% to 6% top-line organic growth in a stable economic cycle over the next three years; FY2026 organic volume growth underwritten at approximately 3% (driven by price/mix of ~1.5–2%).
• Operating Margins: Pathway established to reach 25% operating margin by 2027 (targeting end of 2027 or beginning of 2028).
• AI Spend: Net spend on AI expected to quintuple in 2027.
• Capital Allocation: Shifted bias to 70% capital return (share buybacks/dividends) and 30% M&A for the foreseeable future, reversing prior 70/30 M&A bias due to high asset multiples and undervalued share price.

Business-Segment Outlook:

• Heat Exchangers (SWEP): 20% capacity addition coming online by mid-2027; margins currently depressed but projected to increase 500–600 basis points as volume absorbs capacity; rate of growth expected to slow from the 40s to a lower, sustainable range.
• Refrigeration: Transitioning to a "pure margin story" in the near term; closing a California plant with significant transitory costs, expecting significant margin lift upon completion.
• Cryogenics & Energy: Strong growth driven by LNG, CNG, propane build-out, and space launch; however, natural gas compression/pipeline construction growth is delayed, with demand expected to spill into 2027.
• Biopharma/Medical: FY2025 characterized as consumption-driven (inventory balanced); FY2026 growth reflects natural organic expansion without inventory build-up; growth rate expected to slow compared to post-pandemic spikes.
• Pumps/General Industrial: Unit volumes slightly up with positive mix; polymer processing market (down for three years) expected to lap headwinds and see improved quoting/order activity in 2027.
• Retail Fueling: Cycle duration extended from 3 to 4 years; market is a duopoly with healthy margins; capacity constraints in North America are lengthening the opportunity window.
• Data Centers: Direct exposure via thermal connectors and brazed plate heat exchangers; pragmatic capacity planning to avoid overbuilding; monitoring opportunity in cryogenic cooling if water cooling becomes insufficient.
• Printing: 2%–4% annual organic growth expected; margins near 30%; cash engine for the group.

Market and Competitive Outlook:

• Inflation/Deflation Dynamics: North America remains an inflationary environment requiring nimbleness in price/productivity; deflationary pressure anticipated primarily from dropping energy prices; broader commodity deflation expected to take 18 months to filter through if it occurs.
• Pricing Power: Expecting to maintain pricing power with 1.5%–2% price contribution to growth; net price-cost impact expected to remain non-negative barring "spectacularly strange" events.
• Labor: Labor scarcity in specific categories (e.g., welders) due to AI build-out demand is pushing inflation; competitors prioritize speed over cost, creating wage pressure.
• M&A Market: High private-to-public multiple spreads and scarcity of assets (due to PE continuation funds) are suppressing M&A activity; management prefers buybacks until asset multiples become more reasonable.
• Order Trajectory: Orders currently outpacing revenue growth; however, negative order percentage comps are expected in the next year as capacity constraints cause lead times to lengthen and order placement peaks.

Macro / Industry Outlook:

• Economic Cycle: North America performing well; Europe expected to be flat overall due to election uncertainty; AI build-out is deemed a "net negative" long-term driver for broader markets due to input inflation and capital cost competition.
• Capital Cost: Accelerated depreciation tax policies are offsetting interest rate costs of capital; management hopes energy price drops will aid inflation control, preventing Fed rate hikes.
• AI Build-out: Acknowledged as "sucking away" labor and capital, causing inflation; concerns exist regarding the duration of this capex cycle and potential slowdown in other market segments as AI demand wanes.
• Regulatory/Tariffs: Tariff-related onshoring and tax incentives are driving facility reinvestment; management views this as a multi-year structural positive for the U.S. portfolio.

Strategic Initiatives:

• Capacity Additions: Currently constructing four greenfield plants simultaneously (unprecedented in tenure), focused on growth areas (cryogenics, refrigeration) and regions benefiting from onshoring/tax treatment.
• Footprint Restructuring: Net reduction in facilities compared to 2015 (e.g., reducing cryogenic plants from 10 to 5); remaining footprint adjustments will be growth-driven or M&A-driven.
• Organic Investment: 80% of strategic time focused on capex due to superior returns on organic investment compared to M&A; willing to accept short-term margin compression during build-out phases (e.g., heat exchangers).
• Internal AI Adoption: Early adoption limited to coding (headcount reduction); expanding into factory floor and customer management applications in 2027.
• M&A: Continued focus on "tuck-in" acquisitions; no large acquisitions expected due to high multiples.

Risks and Headwinds to Outlook:

• AI Duration: A slowdown in AI build-out could reverse inflationary trends but also stall project kick-offs in other sectors; "duration" of AI capex is a key market concern.
• Order Comps: Inevitable negative order percentage comps next year as lead times lengthen and existing orders are recognized as revenue.
• Input Costs: Vulnerability to volatile commodity metals (e.g., copper) and energy price fluctuations.
• Inflation Stickiness: If North America fails to control inflation, Fed rate hikes could increase cost of capital and dampen economic activity.
• Pipeline Delay: Natural gas pipeline construction permits are causing delays in expected growth for gas compression.
• M&A Feasibility: High asset multiples may preclude profitable acquisitions despite desire to buy.

Management Tone on the Future:

• Confidence: Confident in a "very similar setup" to the current year for the coming year despite different specific product drivers; optimistic about the path to 25% margins.
• Pragmatism: Describes AI exposure as "pragmatic" and not "overtly long"; acknowledges the "sucking" effect of AI on the broader economy but views it as a necessary inflationary force.
• Patience: Willing to endure short-term margin compression for long-term capacity absorption (e.g., SWEP, Refrigeration).
• Cyclical Awareness: Expects the typical "flip out" regarding negative order comps next year as the cycle normalizes.

Miscellaneous:

• Net M&A: Net M&A spend over the last nine years has been ~$1 billion (sales roughly equaling purchases), preserving high ROIC.
• Inventory: Biopharma inventory levels balanced in 2025; growth in 2026 is purely organic consumption.
• Commodities: Hedging decisions made earlier in the year regarding copper and base metals are expected to yield positive results for the year.