Richard Tobin : 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 as 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 has got to get depleted. So our expectation is that our demand will inflect up before the end market demand kind of bottoms.
Jeff Sprague : And then on the liquid cooling stuff, there’s a number of competitors and the like, and I don’t expect you to name names, but do you have more than one or two cooling-related customers in this market? And you had also indicated you were specified by chip OEMs, not to parse words, but I’m just wondering if that was kind of a misspeaking and you’re actually specified by the cooling HVAC-related companies. Just curious on that detail.
Richard Tobin : Not 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 up end. But clearly, we’re going to have to sell into the build channel ultimately will be our customers as those units are built.
Jeff Sprague : And it’s more than — more customers than I can count on one hand or now which you talking kind of.
Richard Tobin : Apparently, everybody is in the space, including us. What I can tell you is it’s a — 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.
Operator: Our next question comes from Scott Davis with Melius Research.
Scott Davis : You were probably a little bit more skeptical than some of the others in ’24 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 : 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 solid days in 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 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 : And Rich, totally switching gears, but are you happy with the portfolio you have? It’s just — 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 makes sense to look at departing with?
Richard Tobin : How do I want to answer that? I know that I’m on the clock, right? Did you give me 12 months? De-Sta-Co is a good example, right? 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 De-Sta-Co not trading within the Dover portfolio, so I think that optionality remains on other pieces of the portfolio, but you need to find ruling partners and the like, this is the first part of the question. The second part of the question, Scott, is if we go back to ’18, ’19 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 ’18 and ’19, if we were to monetize pieces of the portfolio, we’re going to get a lot more than we would have been 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 of — that we’ve been able to extract from the portfolio. So we’ll just retain that optionality going forward.
Operator: Our next question comes from Joe O’Dea with Wells Fargo.
Joe O’Dea : 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 : 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 : But you wouldn’t call that lumpy. You’re not saying Q1 is like lumpy. It’s like there’s sustainable demand at that level in climate.
Richard Tobin: 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 : And then just circling back to David’s question, making sure I kind of understand the takeaway mean it sounds like what you’re seeing in order levels is really the reflection of what you see for sell-through demand so that 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: 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 we don’t see stocking. We just see it pass it.
Operator: Our last question comes from Deane Dray with RBC Capital Markets.
Deane Dray : 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 : It’s stable, Deane. You have some inflection up and down between the equipment side that the consumable portion is generally a steady eddy. 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 dollar.
Deane Dray : 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 in the U.S., but where’s SWEP and data centers in Europe? And then on the connectors, are you being asked to bid on these projects for the chip makers? Or are you being is a negotiated design in because that’s a big differentiator.
Richard Tobin : 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 is it’s designed 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.
Operator: And thank you, ladies and gentlemen. That concludes our question-and-answer period and Dover’s first quarter 2024 earnings conference call. You may now disconnect your lines at this time, and have a wonderful day.
