Fitch Affirms Dover's Ratings at 'A/F1'; Outlook Stable
CHICAGO--(BUSINESS WIRE)--
Fitch Ratings has affirmed Dover Corporation's (NYSE: DOV) long-term
Issuer Default Rating (IDR) and debt ratings at 'A' and its short-term
IDR and commercial paper (CP) ratings at 'F1'. A full rating list is
shown below. Fitch's actions affect $3.2 billion of total debt,
including the undrawn $1 billion revolving credit facility (RCF). The
Rating Outlook is Stable.
The ratings and Outlook are supported by Dover's solid annual free cash
flow (FCF), strong operating profile from a diversified business
portfolio, and leading positions in secular growth markets.
Concerns include Dover's aggressive cash deployment for acquisitions and
share repurchases, integration risks associated with increased
acquisition activity across disparate businesses and geographies, and
credit metrics at the weaker end for the rating.
Fitch expects annual FCF will continue exceeding $500 million, mostly
from stronger profitability. The company has consistently achieved its
10% pre-dividend FCF margin target, with inventory liquidations and
lower capital spending offsetting lower profitability levels in periods
of negative revenue growth.
Ongoing operating efficiency initiatives, in conjunction with
acquisitions and business portfolio pruning, could strengthen Dover's
operating profile. The company's planned divestiture of electronics
equipment businesses, on the back of selling its commercial construction
business in 2011, will further reduce exposure to more volatile and
capital intensive businesses.
Fitch believes Dover's flexibility for acquisitions and share
repurchases meaningfully exceeding FCF is approaching its limit. Cash
balances should end 2012 below $750 million and last four-year average
of $1 billion. The ratings and Outlook reflect Fitch's expectations that
Dover will moderate share repurchases to limit total debt to capital to
35%.
Pro forma for the recent purchase of Anthony International, Dover spent
$956 million on acquisitions net of divestitures through Sept. 30, 2012,
following $856 million of net acquisitions in 2011. Nonetheless, Dover
funded this acquisition with borrowings under the commercial paper (CP)
program, which the company will reduce with FCF.
Acquisitions since 2008 have added an estimated $1.5 billion of annual
revenues and Fitch expects Dover will remain acquisitive in order to
achieve its 3%-5% inorganic annual revenue growth target.
Dover has also ramped up its share repurchases, albeit from subdued
levels during the 2008-2009 recession. Through the nine months ended
Sept. 30, 2012, the company bought back 6.6 million common shares for
$393.5 million and its board of directors recently authorized up to $1
billion of stock buybacks within the next 4-6 quarters.
Fitch estimates total leverage (total debt to operating EBITDA was 1.3x
for the latest 12 months (LTM) ended Sept. 30, 2012, but likely was
closer to 1.7x, pro forma for the acquisition of Anthony International.
This is consistent with the aforementioned target long-term debt to
capital ratio of 35%.
Negative rating actions could occur if: i) financial flexibility
declines due to acquisition spending, and stock buybacks continue to
meaningfully exceed annual FCF; or ii) the pace of profitability growth
is insufficient to return total leverage to a long-term ratio of
approximately 1.5x.
Positive rating actions are unlikely in the absence of a commitment to
maintaining lower total leverage, which Fitch does not believe would
provide Dover with the flexibility to achieve its growth objectives.
Dover's organic sales should increase by low- to mid-single digits over
the near term, driven by solid demand in key growth areas, particularly
handset and energy markets. Emerging markets remain solid, although
demand in Europe (15%-20% of revenues) continues to be weak.
Acquisitions should add 3%-5% of annual revenue growth over the near
term.
Higher volume, the benefits of past efficiency initiatives, and the
inclusion of more profitable acquisitions should drive solid operating
profit. Fitch expects operating profit margin to exceed 16% for 2012, up
from 15% in 2011.
Dover's liquidity profile at Sept. 30, 2012 was sufficient and included:
--$794 million of cash and cash equivalents, of which $516 million was
held outside the U.S.;
--An undrawn $1 billion RCF expiring 2016, which Dover uses as a
back-stop for the CP program. Fitch's expectation for FCF of more than
$500 million also supports liquidity.
Total debt of approximately $2.2 billion at Sept. 30, 2012 consisted of
staggered tranches of senior notes. Dover's short-term debt outstanding
consisted of $3 million related to capital leases. Subsequent to Sept.
30, 2012, short-term debt also includes CP borrowings used to fund the
Anthony International transaction in the current quarter.
The company has no significant debt maturities until 2015. In addition,
pension contributions to qualified plans should remain manageable and
are expected to be $20 million to $40 million in 2012 and assumed to be
$40 million in each of the next few years.
Fitch affirms the following ratings for Dover:
--Long-term IDR at 'A';
--Senior unsecured RCF at 'A';
--Senior unsecured notes at 'A';
--Short-term IDR at 'F1';
--CP at 'F1'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.
Fitch Ratings Primary Analyst Jason Pompeii, +1-312-368-3210 Senior
Director Fitch, Inc. 70 W. Madison St. Chicago, IL 60602 or Secondary
Analyst Eric Ause, +1-312-606-2309 Senior Director or Chairperson Craig
Fraser, +1-212-908-0310 Managing Director or Media
Relations: Brian Bertsch, New York, +1 212-908-0549 Email: brian.bertsch@fitchratings.com
Press Release $DOV Dover Corporation
CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Dover Corporation's (NYSE: DOV) long-term Issuer Default Rating (IDR) and debt ratings at 'A' and its short-term IDR and commercial paper (CP) ratings at 'F1'. A full rating list is shown below. Fitch's actions affect $3.2 billion of total debt, including the undrawn $1 billion revolving credit facility (RCF). The Rating Outlook is Stable.
The ratings and Outlook are supported by Dover's solid annual free cash flow (FCF), strong operating profile from a diversified business portfolio, and leading positions in secular growth markets.
Concerns include Dover's aggressive cash deployment for acquisitions and share repurchases, integration risks associated with increased acquisition activity across disparate businesses and geographies, and credit metrics at the weaker end for the rating.
Fitch expects annual FCF will continue exceeding $500 million, mostly from stronger profitability. The company has consistently achieved its 10% pre-dividend FCF margin target, with inventory liquidations and lower capital spending offsetting lower profitability levels in periods of negative revenue growth.
Ongoing operating efficiency initiatives, in conjunction with acquisitions and business portfolio pruning, could strengthen Dover's operating profile. The company's planned divestiture of electronics equipment businesses, on the back of selling its commercial construction business in 2011, will further reduce exposure to more volatile and capital intensive businesses.
Fitch believes Dover's flexibility for acquisitions and share repurchases meaningfully exceeding FCF is approaching its limit. Cash balances should end 2012 below $750 million and last four-year average of $1 billion. The ratings and Outlook reflect Fitch's expectations that Dover will moderate share repurchases to limit total debt to capital to 35%.
Pro forma for the recent purchase of Anthony International, Dover spent $956 million on acquisitions net of divestitures through Sept. 30, 2012, following $856 million of net acquisitions in 2011. Nonetheless, Dover funded this acquisition with borrowings under the commercial paper (CP) program, which the company will reduce with FCF.
Acquisitions since 2008 have added an estimated $1.5 billion of annual revenues and Fitch expects Dover will remain acquisitive in order to achieve its 3%-5% inorganic annual revenue growth target.
Dover has also ramped up its share repurchases, albeit from subdued levels during the 2008-2009 recession. Through the nine months ended Sept. 30, 2012, the company bought back 6.6 million common shares for $393.5 million and its board of directors recently authorized up to $1 billion of stock buybacks within the next 4-6 quarters.
Fitch estimates total leverage (total debt to operating EBITDA was 1.3x for the latest 12 months (LTM) ended Sept. 30, 2012, but likely was closer to 1.7x, pro forma for the acquisition of Anthony International. This is consistent with the aforementioned target long-term debt to capital ratio of 35%.
Negative rating actions could occur if: i) financial flexibility declines due to acquisition spending, and stock buybacks continue to meaningfully exceed annual FCF; or ii) the pace of profitability growth is insufficient to return total leverage to a long-term ratio of approximately 1.5x.
Positive rating actions are unlikely in the absence of a commitment to maintaining lower total leverage, which Fitch does not believe would provide Dover with the flexibility to achieve its growth objectives.
Dover's organic sales should increase by low- to mid-single digits over the near term, driven by solid demand in key growth areas, particularly handset and energy markets. Emerging markets remain solid, although demand in Europe (15%-20% of revenues) continues to be weak. Acquisitions should add 3%-5% of annual revenue growth over the near term.
Higher volume, the benefits of past efficiency initiatives, and the inclusion of more profitable acquisitions should drive solid operating profit. Fitch expects operating profit margin to exceed 16% for 2012, up from 15% in 2011.
Dover's liquidity profile at Sept. 30, 2012 was sufficient and included:
--$794 million of cash and cash equivalents, of which $516 million was held outside the U.S.;
--An undrawn $1 billion RCF expiring 2016, which Dover uses as a back-stop for the CP program. Fitch's expectation for FCF of more than $500 million also supports liquidity.
Total debt of approximately $2.2 billion at Sept. 30, 2012 consisted of staggered tranches of senior notes. Dover's short-term debt outstanding consisted of $3 million related to capital leases. Subsequent to Sept. 30, 2012, short-term debt also includes CP borrowings used to fund the Anthony International transaction in the current quarter.
The company has no significant debt maturities until 2015. In addition, pension contributions to qualified plans should remain manageable and are expected to be $20 million to $40 million in 2012 and assumed to be $40 million in each of the next few years.
Fitch affirms the following ratings for Dover:
--Long-term IDR at 'A';
--Senior unsecured RCF at 'A';
--Senior unsecured notes at 'A';
--Short-term IDR at 'F1';
--CP at 'F1'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Primary Analyst
Jason Pompeii, +1-312-368-3210
Senior Director
Fitch, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Eric Ause, +1-312-606-2309
Senior Director
or
Chairperson
Craig Fraser, +1-212-908-0310
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
Source: Fitch Ratings