We’re ready to move on from Dover after the industrial conglomerate’s weak quarter
Shares of Dover Corporation are plummeting on Thursday after the industrial conglomerate delivered disappointing quarterly results. Their days in our portfolio are numbered. Revenue in the second quarter rose 6.8% on an annual basis to $2.19 billion, coming up short of the $2.21 billion consensus, according to LSEG. Adjusted earnings per share (EPS) in the three months ended in June totaled $2.74, topping expectations by a penny, LSEG data showed. Total orders in the period grew 16%, while free cash flow was up 24% year over year to $188 million. Dover shares fell more than 9% to roughly $195 apiece, touching their lowest levels of the year. The stock’s all-time closing high of $233.31 came on Feb. 20. It got within a few bucks of that peak in late June, before losing momentum into Thursday’s print. DOV YTD mountain Dover’s year-to-date stock performance. Bottom line We said this was a do-or-die quarter for Dover. Now that we have the numbers and conference call commentary in hand, we’ve determined it’s time to pull the plug on this investment. Accordingly, we’re downgrading the stock to a 3 rating, which we define as sell into strength. This means we’re not looking to blow out of the position into Thursday’s weakness. The results aren’t so bad that the stock is at risk of a prolonged freefall. We’re hopeful that shares should be able to stabilize, and as that occurs, we’ll look for opportunities to lighten up. We currently own 285 shares, with an average cost basis of $179.94. We trimmed our Dover position twice last month, at r oughly $214 a share on June 4 and at $224 on June 17 . Locking in double-digit profits on both sales looks better in hindsight and underscores our long-held discipline to sell shares on the way up. Even before Thursday’s report, the way Dover’s stock traded left plenty to be desired. This is a market that oscillates between wanting everything artificial intelligence infrastructure and wanting unrelated ideas, like drugmakers, health insurers and banks. Dover doesn’t seem to fit cleanly into either bucket. It has growing exposure to the data center and other multiyear investment themes, such as space and the energy transition. Some of its key products here include brazed plate heat exchangers and thermal connectors used in the liquid cooling of AI servers in data centers. It also makes bearings for gas turbines , like those made by fellow Club name GE Vernova . But as of the second quarter, these “secular growth markets” — to use Dover’s phrase — represent about 25% of expected 2026 revenue. That’s up from 20% in the first quarter, so it’s going in the right direction. But it’s still not enough to change the narrative of the sprawling company, which also sells can-making equipment, vehicle repair lifts and specialized printers used for bar codes, serial numbers and textiles. These niche businesses help the world go around, but that doesn’t mean they add up to a great investment in this current moment. Worse yet, Dover had an execution issue in the second quarter, which weighed on organic growth and contributed to the top-line miss (and the miss in its Climate and Sustainability Technologies segment). The problem is found in Dover’s CO2 refrigeration business, which had been a non-AI bright spot in the first quarter as grocery stores seek out the energy-efficiency gains of these natural cooling systems. But in the April-to-June period, Dover had issues ramping up production while trying to consolidate its manufacturing footprint. While CEO Richard Tobin took responsibility for the issues and indicated they would be fixed in the coming quarters, it is nevertheless disappointing to see Dover stumble in one of its strongest businesses. If there’s a silver lining, it is that this is not a demand issue. Execution problems are fixable, which is why we think the stock can be sold at a better price. With our portfolio nearly maxed out at 34 positions, we need to take a critical look at all our positions and ask whether our money will generate better returns elsewhere. With Dover, the answer is now yes. Saying goodbye to Dover will not mean our portfolio will be bereft of industrial stocks that benefit from a resilient U.S. economy and a pickup in manufacturing activity . The newly independent FedEx Freight checks that box, as does Honeywell Technologies , which delivered an encouraging earnings report on Thursday morning. Guidance Dover increased its full-year guidance for organic growth and adjusted EPS — an expected outcome after the conservative decision to leave both unchanged following April’s strong quarter. Revenue growth in the range of 6% to 8%, up from 5% to 7% previously. Organic growth in the range of 4% to 6%, an increase from the prior 3% to 5%. Adjusted EPS between $10.55 and $10.75, resulting in a midpoint of $10.65. The prior range of $10.45 to $10.65 had a midpoint of $10.55. (Jim Cramer’s Charitable Trust is long DOV, FDXF, and HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
About the Author
