Jan 30, 2008
Executives
Paul E. Goldberg - Treasurer and Director, IR Ronald L.
Hoffman - President and CEO Robert G. Kuhbach - VP, Finance and CFO
Analysts
Alexander Blanton - Ingalls & Snyder Robert McCarthy - Robert W. Baird & Co John Inch - Merrill Lynch Terry Darling - Goldman Sachs Stephen Tusa - JP Morgan Scott Davis - Morgan Stanley Wendy Caplan - Wachovia Capital Markets
Operator
Good morning and welcome to the Fourth Quarter and Full Fiscal Year 2007 Dover Corporation Earnings Call. With us today are Ron Hoffman, President and Chief Executive Officer of Dover Corporation, and Rob Kuhbach, Vice President of Finance and Chief Financial Officer of Dover Corporation; and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation.
After the speakers’ opening remarks, there will be a question-and-answer period. [Operator Instructions].
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 would now like to turn the call over to Mr.
Paul Goldberg. Mr.
Goldberg, please go ahead, sir.
Paul E. Goldberg - Treasurer and Director, Investor Relations
Thank you, Marqitta. Good morning and welcome to Dover's fourth quarter earnings call.
With me today Ron Hoffman, Dover's President and Chief Executive Officer; and Rob Kuhbach, Dover's VP of Finance and CFO. Today's call will begin with some comments from Ron on Dover's operating and financial performance, both for the quarter and the full year.
We will then open the call up to questions. In the interest of time, we kindly ask that you limit your questions to one with a follow-up.
Please note that our current earnings release, investor supplement, and associated presentation can be found on our website, www.dovercorporation.com. This call will be available for playback through 5:00 PM February 13, and the audio portion of this call will be archived on our website for three months.
The replay telephone number is 800-6421-1687. When accessing the playback, you will need to supply the following reservation code, 30323962.
Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statement.
Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information can be found.
With that, I would like to turn this call over to Ron.
Ronald L. Hoffman - President and Chief Executive Officer
Thanks, Paul. Good morning, everyone.
Thank you for joining today's conference call. We are pleased to report that Dover 2007 revenue increased to $7.2 billion, up 14% and diluted earnings per share from continuing operations was $3.22 up 12% over the prior year.
Before getting into additional financial information, let me start by commenting that 2007 was a year of significant progress at Dover as we implemented several strategic initiatives to enhance the success of our company longer term. First, we optimized Dover’s organization structure by aligning our operating companies into four defined industry segments, with six core business platforms.
In addition to simplifying Dover’s strategic direction, this new structure provides sharper focus for Dover’s acquisition program, enhances the opportunities to capture synergistic savings and advances the development of Dover’s executive talent. Second, our strong free cash flow allowed us to reevaluate our capital allocation priorities, resulting in 8% increase in our annual shareholder dividend and announcement of two successive share repurchase programs, totaling approximately $1 billion.
When completed, the share repurchases programs will reduce Dover’s outstanding share count by roughly 10%. In 2007 the company repurchased 12.4 million shares for $591 million and has added another million shares to that total in early 2008.
Additionally Dover spent $274 million on strategic add-on acquisitions that offered synergistic products and expanded markets for existing platforms. Lastly, we launched the new initiative to capture significant synergies throughout the organization.
We are highly encouraged with these actions which will include aggregated global sourcing, facility consolidations, and business integrations, will improve Dover’s operating earnings by 4% to 6% over the next two years. Turning to the financial results.
Dover announced fourth quarter net earnings from continuing operations of $169 million or $0.86 per share, up 9% and 14% respectively over the prior year. Quarterly revenue was $1.86 billion, up 11% with operational earnings of $266 million, up 12% over the prior year.
Operating margins for the quarter were 14.3%, up 20 basis points over the prior year. Double digit earnings improvement was posted in the Product Identification, Energy, and Fluid Solution platforms.
Bookings were $1.78 billion during the quarter, up 10% over the prior year. All segments and platforms posted year-over-year gains and four of the six platforms posted sequential gains.
Dover entered the year with a record backlog, up 13% over last year, with double digit gains at four to six platforms. For the full year, net earnings were $661 million or $3.26 EPS, up 19%, including income from discontinued operations of $7.8 million or $0.04 EPS.
The reduction in share count accounted for $0.02 of the annual EPS gain. Double digit sales and earnings gains were posted by the industrial products, engineered systems, and fluid management segments.
Operating margins for the year were down 70 basis points as improvements in the mobility equipment and energy platforms were offset with decline related to the integration of Markem and product identification, volume and mix issues related to the semicon companies and electronic technologies, and the rightsizing initiatives at Paladin in the Material Handling platform. Bookings for the year were $7.3 billion, up 14% over the prior year, with double digit increases at the industrial products, fluid management, and engineered systems segments.
During 2007, Dover expanded its global footprint with an add-on acquisition in China and opened or expanded facilities in Mexico, Slovakia, the Czech Republic, India, China, and Malaysia. Dover generated strong free cash flow of $728 million, 10% of annual revenue, driven by the increased earnings and continued improvements in working capital.
Fourth quarter free cash flow was very strong at $321 million, 17% of quarterly revenue. Dover exercised discipline in the high priced acquisition climate of 2007 and invested $274 million on value creating add-on acquisitions to broaden its existing platform.
Pole/Zero and add-on to the Microwave Products Group is off to a very nice start and its focus on defense communication products helped to reduce the volatility of the electronic technology segment. Rotary Lift, a mobile equipment platform company acquired Hanmecson in China to expand its presence in this fast growing region as well as offering a value priced product for the domestic market.
The recent Camco add-on to STA-CO in the material handling platform will broaden its automation product offerings and expand the served markets beyond its historic automotive focus. Wilden’s acquisition of Griswold Pump is making an immediate impact in the fluid solutions platform by adding a centrifugal ANSI pump offering to its global distribution network.
Looking forward we believe the acquisition pipeline will favor wealth on its strategic buyers like Dover. And we are encouraged with the current strategic add-on projects under review.
Dover’s 14% annual revenue growth, included 9.7% from acquisitions, organic growth of 2.3%, and 2.1% attributed to foreign exchange. The organic revenue growth rate was negatively impacted by the decline in the semicon markets served by the electronics technology segment.
Organic growth for the core industrial companies was 5.2% inline with our 5% to 7% target. We anticipate organic growth for 2008 to be in the mid single digit range.
Our business leaders’ forecast 2008 to be another year of growth for Dover. The majority of our companies entered the year with a positive outlook, solid backlogs, and exciting new products to serve their customers.
We are encouraged by this optimism, but we are also keeping a keen eye on the unsettled economic climate and transits Dover’s global markets. Our segment leaders have reviewed contingency plans and are prepared to react quickly and decisively to keep our businesses properly aligned with the pace of their respective markets.
Material cost trends are being anticipated with planned price increases, fixed price contracts on key materials, and consolidated global purchasing initiatives. Let me add some color to this outlook by segment and operating platform.
Looking at the industrial products segment, the material handling platform recorded solid sales and earnings gains, with its broad engagement in light construction, demolition equipment, and utility equipment. Challenges in heavy construction equipment will continue and we don’t foresee any volume improvement, but we are anticipating performance enhancements from the integration initiatives that were implemented in 2007.
Our Winch companies continue to grow with military contracts, new products, and oilfield demand. Warn Winch received the best new product award at the 2007 SEMA show for its new compact and portable PullzAll tool which provides lifting and pulling capabilities for a variety of tradesmen applications.
The recent acquisition of Camco will provide positive growth in sales and earnings at our factory automation companies. The Mobile Equipment platform is bolstered by its transportation equipment companies.
These are fuel tankers and aerospace companies that have long-term contracts in its backlog that account for nearly 50% of annual sales. Waste handling equipment should benefit from improved chassis deliveries that impacted 2007 performance.
Vehicle service equipment though forecasting positive growth and entering the year with increased backlogs would be impacted early if the domestic economy slows. Turning to the engineered systems segment.
The integration of Markem and Imaje will continue to produce positive results to fuel future growth within the product identification platform. Margins at Markem improved 700 basis points during 2007 and significant synergy initiatives between direct coating companies are being implemented.
Over 50% of the platform revenue is tied to consumables used primarily in the fast moving consumer goods arena like food, beverage, cosmetics, pharmaceutical, and other consumer staple. In the Engineering Products platform, food display equipment continues to gain sales with new customers utilizing its market leading sustainability products and is poised to produce another year of growth despite the impact of reduced new store construction at Wal-Mart.
In 2007, Hill Phoenix was a founding member of the U.S. EPA’s Green Chill Advanced Refrigeration Partnership, an initiative that advances environmental commitment of companies to go beyond regulatory requirements in protecting the ozone layer and reducing greenhouse gas emissions.
Brazed heat exchanger revenue which grew 48% in 2007 will continue to expand its global footprint and anticipates growth above global GDP rates. A new management team and product rationalizing decisions drove significant Q4 headcount reductions in the ATM business which will provide the improved results going forward.
The fluid management segment is forecasting continued growth and positive leverage for the year. Within the energy platform, we expect a continuation of high energy prices coupled with strong global fuel consumption, natural gas transmission requirements, and new power generation projects to provide additional growth.
Dover’s broad exposure to global oil and gas drilling, new offerings in well automation equipment, increased adoption of specialty quartz sensors, and optimization of gas transmission equipment provides a broad base of engagement in this important sector of the economy. Our pump and dispensing companies in a fluid solutions platform have a very global footprint with strong recurring revenues.
Capital budgets and MRO spending of chemical, pharmaceutical, and waste water processing drive their growth opportunities. Clean air regulations and state driven initiatives continue to provide long-term growth opportunities for service station equipment.
In general, the fluid solution companies are low volatility companies with sustainable margins. At Electronic Technologies, equipment sales related to testing and fabrication of semiconductor and PC boards was down 11% in 2007 relative to a very strong 2006.
Consumer electronic spending and the telecom market are barometers for our semicon equipment activity. Even though, we anticipate some improvement over the year, headcount reductions are currently being initiated to optimize quarterly results and align the businesses with current market trends.
The hearing aid market is forecasting mid single digit growth, and historically, has shown low volatility relative to the general economy, driven by the increased demands of an aging population and the technical advancements that improve the adaptability of hearing aids. We continue to believe that the hearing aid market will exhibit an above average growth rates for many years.
In 2007, MEMS microphone unit sales grew with a broader mix of customers, offsetting the market share declines of a major customer. We anticipate additional cell phone growth in 2008 based on consumer demand trends for enhanced audio and video features.
New product opportunities with audio headsets and microphones for PC manufacturers will provide growth. Typically, this market has a slower first quarter and builds volumes over the later quarters.
New product applications targeted to military, space, medical, and specialty sensors will continue to broaden the customer base of our specialty electronic component companies. Lastly, it’s very important to acknowledge and say thank you to the highly talented and creative employees that produced Dover’s record results in 2007.
Their sincere dedication improving Dover’s performance and adapting to change give me great confidence and their ability to meet to meet the unique challenges of 2008. We strongly believe in the positive direction Dover is headed and are confident our new structure, capital application model, and synergy and initiatives lay a solid framework for future growth.
We anticipate increased opportunities to expand our platforms to value creating add-on acquisitions. The broad diversity of Dover’s operating companies and their global engagement will serve our shareholders well over the coming year.
We foresee a quarterly distribution pattern of Dover’s revenue and earnings, similar to 2007 and anticipate a 10% plus increase in earnings per share for 2008. Overall, Dover looks forward to continuing its track record of generating significant cash flow, building value with its strategic initiatives, and delivering another year of record growth for our shareholders.
With that, I will turn it back to Paul Goldberg.
Paul E. Goldberg - Treasurer and Director, Investor Relations
Thanks, Ron. And once again, I would like to remind everybody if you can please limit your questions to one with a follow-up.
We will be able to take everybody in the queue. With that, I would like to turn it over to Marqitta to queue the questions.
Question and Answer
Operator
[Operator Instructions]. Our first question comes from Alex Blanton of Ingalls & Snyder.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning, Alex.
Alexander Blanton - Ingalls & Snyder
Good morning. Thank you.
In looking at 2008, what are the… what are your largest concerns and related to that is the fact that you said organic growth mid single digits, but what do you think will be added by acquisitions in 2008?
Ronald L. Hoffman - President and Chief Executive Officer
Well, let me take your question in the reverse order. As far as acquisition in 2008, certainly, the things will be added those acquisitions that we did that are referenced in my words, which will have some impact to ‘08’s growth.
I think as far as the acquisitions, going forward for the year, Alex, we will just have to kind of see what comes to the pipeline. We are encouraged that strategic buyers like Dover will probably fare better in ’08.
We certainly see some of the high options starting to take a turn. We will see how that develops over the course of the year.
But we are going to be focusing predominantly on strategic add-ons to the platforms that we have announced. So, I think the acquisitions will be kind of self explanatory as we do.
I think you will see that they will be adding diversity or products or impact into our global footprint in the existing platforms on a go forward basis. So, I hopefully that helps you in that regard.
Alexander Blanton - Ingalls & Snyder
I guess I was--?
Ronald L. Hoffman - President and Chief Executive Officer
We talk about… as we talk about 2008, you asked what my largest concerns were. At this point in time, I am really very optimistic from the standpoint of the significant backlogs that we have and the plans that we have reviewed from our companies.
Now certainly if we listen to what we hear on the TV and what we read, it’s a lot more ominous than what our backlogs tend to tell us. So, we are keeping a wary eye on that to see if there is going to be trickle down further into the economy to impact our companies.
But right now we certainly aren’t seeing devastation in our order rates that would mimic what we hear.
Alexander Blanton - Ingalls & Snyder
On the acquisition point you made, I was really thinking of the earnings added by the acquisitions that that would be those mainly that you made in 2007. You had some integration cost that are going to go away.
So, there is going to be some earnings added by those acquisitions above and beyond the organic growth. So, I am trying to get a sense of that.
Ronald L. Hoffman - President and Chief Executive Officer
Yes, I think that number… we are kind of pulling that together here as we talk. It’s not going to be a large number, because the acquisitions were small in nature that we did in 2007.
We will have a little bit of acquisition related expense on the Camco acquisition, that was done late in the year, but that will not be large rolling into ’08. So, I… we are probably talking about a number that’s… I don’t know.
Rob, you have that…
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Alex, I would say that given its size and what Ron described is the factors, I would say the earnings impact in a percentage of terms would be in the 2% to 3% range.
Alexander Blanton - Ingalls & Snyder
Okay. Thank you.
Operator
Our next question comes from Robert McCarthy of RW Baird.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning, Bob.
Robert McCarthy - Robert W. Baird & Co
Good morning, guys. I am sort of struck by… the first thing that strikes me about your outlook is the acceleration organic growth that you got included in it from… what I guess, what you would call low single digits this year to mid single digits in ’08.
Could you talk about what’s specific piece of the business you see accelerating?
Ronald L. Hoffman - President and Chief Executive Officer
Well, first of all, I would like to say that again as we look at our industrial core businesses, we believe that our organic growth was in that mid single digit target of 5% to 7% as we said… I think we said 5.2% is the number for industrial core. So, we are really talking about those companies maintain their organic growth rates.
And I think we are going to have comps in electronics, it will be less impacting in ’08 than they were in ’07. Certainly, as we look forward to that as I mentioned on the call, we think Heil Environmental that was impacted by deliveries of chassises last year is going to have a much better year in our material… excuse me… in our mobile equipment sector.
We think that the fuel trader business that grew quite solidly in ’07 continues to show growth and has some nice military contracts to support that going forward. We believe Sargent is going to perform better in the aerospace group from the standpoint of the backlogs that they have queued up, and just a strong level of orders and activity going on there.
I think we are also still optimistic about our global footprint engagement with our Product Identification companies. And then energy is certainly one that continues to show growth and our there is very broad whether it would be drilling activity, whether it would be maintenance of existing wells or optimization of existing wells.
So, those are the things that tend to give us comfort level that we will continue to display organic growth. Rob, did you have anything?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I think, Bob, the other thing to keep in mind is last year the electronic technologies area… segment was negative.
Robert McCarthy - Robert W. Baird & Co
Right.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Meaningfully negative. So, it would take relatively little, I have to say, modest improvement in that area.
That will show us a significant impact on the organic number. So, it’s little bit of the math.
Robert McCarthy - Robert W. Baird & Co
Sure. And just to be… to make sure I understood you tour Ron.
My takeaway is that you expect sort of comparable organic growth rates from all three of the non-tech segments, perhaps somewhat slower in tech, but improved from ’07.
Ronald L. Hoffman - President and Chief Executive Officer
Yes, but I wouldn’t totally discount tech either. I think it’s certainly going to depend on what happens in the consumer goods market that will drive that area.
But I would also say that we can be very buoyed by Hearing Aid Company as well as the activity with the MEMS microphone. The cell phone market is continuing to forecast to grow in ’08.
I think there’s some figures out; but some of the companies that marketplace, that are forecasting as much as 9% growth for next year.
Robert McCarthy - Robert W. Baird & Co
Okay. And for a… for a follow-up, if I could.
Regarding the energy business, roughly what is the geographic split there now between U.S. and Canada and the rest of the world?
Ronald L. Hoffman - President and Chief Executive Officer
Well, certainly, we are more domestic U.S. based than anywhere else.
Canada would be the second largest region. From there, South America, certainly Venezuela… countries in that region are important.
We are seeing more and more activity even into Russia, and developments into China. I think we are going to have to expand our footprint of locations at some point in time, to slow… to serve the global world even better.
We will evaluate that when it is appropriate but very broad engagement across the board. You have to kind of keep in mind that if you think about the bigger companies in there, it’s going to be the companies that are manufacturing sucker rods and manufacturing the inserts for the drill heads and such.
And those are… those companies continue to be a little bit more domestic related. However the inserts that we manufactured could be used for any type of well application wherever they might be.
Today I would say, the U.S. could be… the U.S.
numbers are probably as high as 70%.
Robert McCarthy - Robert W. Baird & Co
Okay. Thank you, Ron.
Operator
Our next question comes from John Inch of Merrill Lynch.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning, John.
John Inch - Merrill Lynch
Good morning Ron. Hey, I was just to kind of go back to the guidance of the mid single digit.
I mean, Rob suggested that the delta is going to be electronic technologies. Now, help me understand, why, why do you feel optimistic that that business can actually begin to grow?
I mean, I guess Everett Charles was down, what double digits this year. I mean, why couldn’t it be down if you are sent into a recession, a comparable amount in 2008?
Ronald L. Hoffman - President and Chief Executive Officer
I think that you might have misinterpreted Rob’s comments just slightly. He didn’t say that was going to be the leading driver, but he just said it’s going to have less headwind.
John Inch - Merrill Lynch
Okay.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
The way I put it John, is that if you assume, it doesn’t even, doesn’t assume it is flat year-over-year. That itself will show a positive impact on the organic number.
John Inch - Merrill Lynch
Okay. And are you expecting it to be flat or you think it could still go down?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Expecting it to be flat, but to some degree when you are trying to figure out what the organic rate is given… given the number of businesses we try to analyze. I would say that we expect improvement at Everett Charles or modest improvement, I guess is the way I would characterize it.
But that alone will cause a fairly significant impact on the organic growth rate calculation because last year they were significantly negative. They were, they were high single digit negative, so as a practical matter, I think even if they don’t show some improvement.
So, we are going to see a pick up on our overall organic growth rate.
Ronald L. Hoffman - President and Chief Executive Officer
John, I also hate to be redundant because we have said this in past years also, but we are kind of in that time of the year when the electronics activity level is, is a little bit less clear. I mean, you come out of the year where you supplied components for let’s say your inventory bills, summer season for manufactures.
You go into that kind of period of time where you have Chinese New Year impacting China. You kind of have to wait and get the signals back from the customers to really see the true activity level of electronics.
What we are saying is that we were buoyed by the forecast that we have. We are going to get much more clarity on that, probably by late February into March as to whether our activity levels picks up to what our forecast levels anticipate.
John Inch - Merrill Lynch
Ron, you also, I think on your comments talked about in again still with electronics, a semi-comp $0.10 reductions. If we see that, I mean as you kind of look into 2008 has your staffing as it adds sort of what you would call a right size level and what did that actually that cost you, or is there still some cost to come in terms of some headcount reductions?
Ronald L. Hoffman - President and Chief Executive Officer
Well, some of those headcount reductions, again this is a Company with a very international footprint, and this is a group of companies, I should say, with a very international footprint. As a result as you make cuts, certainly in Europe those are going to be expensive cuts and there will be some… sort of will impact the first quarter in that regard.
We are still accumulating those numbers in magnitudes. I think what we are saying John is that… that we are going to leverage in ’08 and we are not going to sit back and kind of wait on the signals before we act.
We are acting earlier. We typically see this a bit of a slow down period.
I think we are reading the signals of Semicon versus Test Equipment versus other component opportunities in electronics market, and just adjusting so that we don’t, don’t have too much false optimism. We can always bow back up if we have overstepped, but I think it is important that we get our capacity inline with what we see as today’s demand.
John Inch - Merrill Lynch
But you are going to eat these charges right? You are not going to call those out separately.
Those will part of the ongoing Ops reported result.
Ronald L. Hoffman - President and Chief Executive Officer
That will be part of the ongoing Ops report. That is correct.
John Inch - Merrill Lynch
Okay. So, one more if I could.
Ron, as you look to the fact that, prices for prospective acquisitions in 2008 have obviously since come down. Should we be looking forward to 2008, to be a year of acceleration, of the $270 you spent in M&A in 2007 and I'm thinking, possibly opportunities to add to Paladin maybe even get into some other areas that look pretty cheap on a multiple basis, whether it be… I don’t know?
I guess, automotive or something like that just to add to some of the portfolio. How would you like us to think about, the way you're thinking about M&A in 2008?
Ronald L. Hoffman - President and Chief Executive Officer
Sean, I'm not certain automotive would hit our focus area but I think, what we will do is, certainly, we believe that the platforms that we have now and the focus as we have give us the opportunities to leverage our acquisitions, maybe more effectively than what we've done historically. I think, we like some of the opportunities that might flow into our Fluid Management Group over the course of the year whether they’d be energy related, whether they’d be pump related.
I think, we continue to like the product ID space very much. I think, the Markem acquisition last year has been very value accreting for Dover to make the significant strides in operating margins we made at Markem.
We certainly… I think, the accolades go to the Markem team. But I think, also the fact that we're able to find significant… in that group will help it over and we will also look for opportunities there.
So, those are the ones we’ll tend to target in on. I think, right now we're engaged in a number of processes that we’ll see whether they go to term, but they’re encouraging and they’ll be very synergistic add-ons in the markets we like.
During the course of the year, if indeed properties stay on the market and if the expectations of sellers are reasonable to what we believe values are, then I think, we’ll step our acquisitions spinning up in ’08.
John Inch - Merrill Lynch
Thanks, much.
Operator
Our next question comes from Terry Darling of Goldman Sachs.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning, Terry.
Terry Darling - Goldman Sachs
Hey, good morning, gentlemen. First question, just, I was looking for an update, if anything has changed with respect to your thinking on magnitude and timing of cost savings efforts here relative to where we were at your analyst meeting?
Ronald L. Hoffman - President and Chief Executive Officer
Well, I don’t know that I could say that anything has changed in terms of timing. I think, we're doing a very rigorous task right now in each of our segments.
Our segment leaders are meeting with their companies to really find out and hone the opportunities that we have so that we can get those properly prioritized and make those realities. There will be some costs associated with that that upfront as we do some facility consolidation, we will see how that plays out over the course of time.
But I would say that once you get those formulated, once you get them implemented, once you get to the true savings of those, it will probably more towards the back part of the year than the front part of the year. But we are encouraged in the 4% to 6% commitment we made at Dover Day is one that we are reiterating today.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
It’s no change there.
Terry Darling - Goldman Sachs
And then Ron, I wanted if you can… should think longer term with me about your strategy in Asia. I guess if I look at the geographic revenue mix pie chart, you had in the slide package, with your growth for Dover overall 14% including acquisitions and a growth of only 5.3% in Asia and presumably that relates to Asia having a lot more exposure in the electronics area which you got some cyclical effect just in ’07.
As you think about your competitive positioning versus other diversified industrial’s longer term, I think probably most would agree that, you would be able to grow more rapidly in Asia is going to be a key competitive differentiator. I am wondering if you can talk to us about how your thing about attacking that market more holistically crossed Dover going forward.
Ronald L. Hoffman - President and Chief Executive Officer
Well, we have established more footprints than Dover crossed each of our segments. And I think those footprints were small in nature, but they were such to engage us in their arena.
Certainly, we did an acquisition in China this year in our Mobile Equipment Group to engage ourselves not only in on that continent, but also to supply back to the domestic economy. We just put a footprint down for our heat exchanger business that we think will grow over time, because we think that technology will be well utilized in the growth of China.
Our Pump Group has set down footprints over there that I think will allow us to grow. I think the lower growth rate, I think you categorized it properly, was impacted by the pullback in the electronics over last year.
If that picks backup, that will certainly help us. We probably got 4,300 employees in China right now.
So, we have a significant structure there, and we continue to make investments there. But we have also channeled many of our companies that were looking at China to supply the domestic economy and kind of move some of those companies more to Mexico, because it was closer to our domestic economy, helped our ability to control our inventory and really ended up being a better cost picture for us, but Asia still important.
We need to find a way to continue to engage more there. We are encouraged by the companies have gone there.
It takes a few years to get yourself established, to get yourself… to have the right distribution channels to reach out to the customers. And also I think a fighting that we had is, we have typically gone to new locales, new geographies as individual entities.
I think when you go to China, it is more important that Dover show a presence there and Dover has a much more supportive structure in that. And I think we will be doing that over the course of ’08.
Terry Darling - Goldman Sachs
I guess Ron, if we narrow that question in on just China specifically, maybe it would be helpful to me. If you could give a sense of which of your major platforms do you feel that has got the most opportunity longer term and which one has got the most work to do to achieve whatever opportunity you think exists for it.
Trying to get a sense for the relative… your positioning of your major platforms versus where you want to be and obviously the opportunity in that context be the key driver?
Ronald L. Hoffman - President and Chief Executive Officer
Well. Electronics is already very well positioned on that continent.
So, I think, other than the relocating facilities made in different locales in the continent, I think we have a nice footprint there. I think, if we look at the product identification again, it has a nice footprint that started there, I think, they have the ability to really expand and serve that continent on a stronger basis, going forward.
I think, they will do that; sort of there are opportunities for our pump group to expand its platform in China and serve those needs. Energy is one that we think there’s opportunities in China that we probably have not taken full advantage of.
We have had teams over there to evaluate that and we are hopeful that we’ll see maybe some footprint in that arena because we think energy in Asia and Russia are growth opportunities for us.
Terry Darling - Goldman Sachs
Yes. That’s up and lastly, you mentioned potential divestitures in the context here at all.
Is there anything we should be thinking about there?
Ronald L. Hoffman - President and Chief Executive Officer
Well, I think that there is not any large ones out there looming on the horizon right now that other than ones that we discontinued and commented on previously, I again think that some of the churn we have done over the last couple of years in our portfolio or that work is pretty much behind us now. I think, if there is any further pruning it will probably be lesser in scope than what we have done for the last two years.
I think we are very comfortable with the platforms we have now and we just want to build on those.
Terry Darling - Goldman Sachs
Thanks very much.
Operator
Our next question comes from Steve Tusa of JP Morgan.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning Steve.
Stephen Tusa - JP Morgan
Hi. Good morning.
I'm not named after hometown, it’s Tusa, but that’s okay.
Ronald L. Hoffman - President and Chief Executive Officer
It’s nice to hear the name anyhow.
Stephen Tusa - JP Morgan
So, I just wanted to walk through a couple of numbers here and just correct me if I am wrong but share count you said adds about $0.15 to $0.20 to the ’08 outlook?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I would say Steve, if you look at ’08 standalone it’s more like $0.07 to $0.09, if you look at it accumulatively over a two-year period it’s more like $0.11 to $0.13.
Stephen Tusa - JP Morgan
Okay. And…
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Depending on timing of how quickly we were… some of this will depend on how quickly we end up completing the repurchase, but I would say that includes imputed interest.
Stephen Tusa - JP Morgan
Right. That includes the imputed interest rate.
Okay. And some of cost savings you are going to hit this year, so that’s roughly $0.10.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I would say, the cost right now we would anticipate on a cost basis, like $0.03 to $0.04
Stephen Tusa - JP Morgan
Okay.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
But I mean that’s a moving… we are going to give you some updates on that because as you can imagine, most of the synergies are going to ultimately pay off as you do the… add the cost. So, this type of front loaded phenomenon as Ron alluded to earlier and some of these things like North AOT [ph], there are a number of specific projects we have a pretty good handle on those, some other things that are frankly, still work in process, that companies are really embracing the process much more rapidly than we probably anticipated.
But I would say right now we would think of ourselves as having $0.03 to $0.04 on a full year basis. That number could move up some over time.
Stephen Tusa - JP Morgan
Okay. And then the acquisitions, is there… sorry you said 2% to 3% growth.
What was that, on revenues or was that on EPS?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I am not sure I…
Stephen Tusa - JP Morgan
You said acquisitions will contribute to the 3% of growth, kind of a leftover impact of acquisitions from previous years?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Right. It’s revenue not EPS.
Revenue.
Stephen Tusa - JP Morgan
The… okay so that’s like $0.05 or so.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
No. A little bit less.
Stephen Tusa - JP Morgan
Okay. I guess what I am trying to get to you here is… just a build up from your base, I mean it would seem to me with all these non fundamental items, building it up, you kind of get close to that 10% and then whatever kind of core growth falls through, and if you are assuming to mid single digit, right that’s about $0.20 on the bottom line of incremental.
Is that kind of… how we should be thinking that to hit the 10% you don’t necessarily need to do your 5% core growth, so that 10% plus is really is a kind of a base case?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I would say 10% is a fairly conservative estimate to see.
Stephen Tusa - JP Morgan
Right.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I mean I think the variability gets into… we do have an expected improvement in margins, which we talked about and to some degree when that occurs, that will probably be mid year or more, second and third quarter impact, so this is not as you will know… this is not an exact science, but I think we think that the 10% plus improvement is a fairly conservative estimate based on the assumptions that we have laid out in the slides and that Ron’s talked about.
Ronald L. Hoffman - President and Chief Executive Officer
I would also Steve say that I strongly feel that we should leverage better in ’08. I think our portfolio of companies are probably or even better performers in what we exhibit are the specially charged or write-offs you hear from time-to-time.
I want to continue to believe that we have got our hands around those much better than we would anticipate less activity like that in ’08, but we will see what the year unfolds.
Stephen Tusa - JP Morgan
Right. And then so that’s a kind of a conservative number and I don’t want you to comment on your stock price here.
But you are currently trading at just below 11 times earnings last time that Dover ever traded there was back in the early nineties right before that recession. So, there is obviously a view out there that your earnings are higher than where they actually are going to end up.
How long did it really have to stay at these levels for you to take some sort of action, because even back then when people thought that the world was coming to an end, the stock had a pretty… actually a pretty incredible performance over the next year and a half, up 40% so there was value to be unlocked, even at that time. So, I’m just curious whether… it looks like a better portfolio that should be a little more recession resistant.
How long before you think about something a little bit more than maybe just the standard $500 million buyback you guys have announced.
Ronald L. Hoffman - President and Chief Executive Officer
Well I think we’re comfortable with that number Steve and we don’t want to commit … over commit in that arena and miss the opportunity to grow. It’s a nice value creating acquisitions over time.
I think you always have to balance what’s the right use of your capital. I think you also touched on why do we feel better that Dover is a better Company going forward than it was say in the past recession or past down turn.
And quite candidly I think there’s a lot of change. I think that Dover, the people own today is a different, more focused Dover.
I think we’ve reduced the exposure into the volatile Semicon market from where it was arguably over 25%, a few years ago, it’s down below 10%. Our… excuse me… recurring revenues are now approximately 25% of our total revenue.
We strategically reduced our capital goods exposure so we would sell more through a larger portion of the business cycle than we did in the past. And also product identification of energy which are both nice high growth, high margin groups, now make up over 25% of Dover.
So, I’d say that the Dover story is one of not only growth but a much stronger portfolio. The metrics that we’ve kicked in have certainly made this a better Company.
I think there is a real value opportunity to own Dover.
Stephen Tusa - JP Morgan
Right. So, if we get the 5% that’s great and if you don’t, you are prepared.
Ronald L. Hoffman - President and Chief Executive Officer
Absolutely.
Stephen Tusa - JP Morgan
Thanks a lot.
Operator
Our next question comes from Scott Davis of Morgan Stanley.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning Scott.
Scott Davis - Morgan Stanley
Good morning guys. I’m encouraged by the level of share count reduction, so congrats there.
I wanted to follow up on Steve’s question a little bit because I think he’s touching on an interesting point. But you do have some tailwinds to offset some of these macro headwinds.
One thing that wasn’t mentioned on the call was currency or pension. Was there a change, is there a tailwind from pension at all.
And certainly, I want to also talk about currency and if you’ve have hedges or not hedged. And what kind of an impact currency had on you in the fourth quarter.
So, I might have a view of what it might do in 2008.
Ronald L. Hoffman - President and Chief Executive Officer
Right, I’ll see if Rob can help you with those.
Robert G. Kuhbach - Vice President & Chief Financial Officer
I would say that it’s gone under pension that, frankly we don’t expect anything, the impact earnings at all this year. If anything we’re probably going to show some modest pick up.
On the currency front, we probably… we probably had a higher positive impact from FX in the third quarter… in the fourth quarter than we did prior three quarters, modestly more of a positive impact and I think that reflected to continue deterioration of the dollar, which has benefited us all year but frankly more in the fourth quarter than the prior three quarters. So, we anticipate, I mean if anybody can tell where a currency is going to go… we’re assuming neutrality, but if the currency rates continue in the direction they have in the last year, we’ll probably continue to see another pick up in ’08.
Scott Davis - Morgan Stanley
And the 2.3%, or let’s say 2.8% organic growth, Q4 number you posted, how much of that was currency?
Robert G. Kuhbach - Vice President & Chief Financial Officer
That’s… it’s not in there. Currency is a separate item.
Scott Davis - Morgan Stanley
Okay, I’m just trying to sift this out. Yes, okay I got you.
All right, moving on to the next question, I think one of the big key variables clearly in our models are going to be what electronic technologies can turn the corner and the timing of that. I mean you talk about bookings and backlog up 14% to 13%.
Can you talk more specifically about electronic technologies and maybe a book to bill or some way that you might think about that business since organic in Q4 is down 4% for the full year down seven and we’re moving in the right direction? When do we hit a cross over point where you’re book to bill exceeds one?
Robert G. Kuhbach - Vice President & Chief Financial Officer
Well it has exceeded one at times during the year. I think the fourth quarter as we said always tends to slow as you head into the start of the next year.
And I think you kind of need to think about the electronics technology group kind of in two buckets, so to speak and one is those companies that relate to Semicon that are more dependent, let’s say on consumer electronics on things of that type that are related to the consumers fitting patterns. I think the other part of electronics you need to think of is really the hearing aid components, the microphone support for cell phones as well as the various electronic components and there we’ve added a military play which typically has long contracts.
It’s a whole different business cycle than say the Semicon related items. So, I think we’ve strengthened that portfolio.
I’d say the most volatile side continues to be the Semicon related side. Again the thing that I really like this change in that group is their ability to hold their margins even in down periods.
Certainly there is some volatility that relates to the size impact of the group period to period but we are not losing money in that group any more. It’s maintaining nice double digit margins.
It’s remaining nice engagement in its marketplace. It’s also increased its recurring revenues.
So, I like the fact that it’s not… the downside is more limited than it’s ever been. And I think the potential for let’s say growth within a lower band of volatility in the other electronic areas is certainly a reality.
Scott Davis - Morgan Stanley
Okay. I think I get it.
So, maybe we could talk offline. Last question, just on tax rate.
You had a nice improvement in your tax rate this quarter. Are you still guiding to 2008 tax rate being higher, I think you said 27 to 29, somewhere in that range.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I said 20, I think we said 26 to 28.
Scott Davis - Morgan Stanley
26 to 28?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
I think Scott, the challenge, without getting unduly complicated with GAAP accounting for tax is you are required by GAAP to restart your year at the… what I call effectively the statutory rate and you are not allowed to take into account, what you might otherwise expect to be positive adjustments, that you in our case typically will only see in the third and fourth quarter. So, we give you our guidance which if you look at our history is probably pretty directionally spot on.
But you will not see those… necessarily those exact rates in the first two and three quarters of the year. They will be different, and they will probably be somewhat higher, and they will come down over the year just as they have in the last two years.
Ronald L. Hoffman - President and Chief Executive Officer
Okay. I think Rob certainly has more color on taxes then what I can begin to offer.
But I think if you look at low risk performance over an extended period of time, it’s really been in a pretty narrow band. And the difference has just been kind of our taxation, country to country, then also whatever happens in the tax laws.
Scott Davis - Morgan Stanley
Okay. And last… sorry to go on here but, if Congress does in fact pass this depreciation, it is already depreciation tax credit.
Can you give us a little color, I mean I know we went through this in 2002. Did it help you out much in 2002?
Is there a tangible kind of difference that you see in customers’ activity when you have this type of a tax breakthrough run out there or does it not impact you guys as much?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Well, I don’t know that we can quantify it for you Scott, but if anything like that certainly always has a positive bias to the market, and as I think it causes customers to do look at actual advantages in their business to axe, so I would say a positive bias but I am sorry, I am not going to be able to quantify it for you. It is going to be small though.
Scott Davis - Morgan Stanley
Okay. Understood.
Thank you guys.
Operator
We have time for one last question. Our final question comes from Wendy Caplan from Wachovia.
Ronald L. Hoffman - President and Chief Executive Officer
Good morning Wendy.
Wendy Caplan – Wachovia Capital Markets
Good morning. Given that free cash flow is so important to Dover, can you… I am looking at the working capital numbers, inventory specifically which have moved down through the years despite some acquisitions.
Can you, I guess Rob speak to whether there are areas of greater opportunity on the inventory side as we head into ’08, or is it simply a question of acquisitions and if you have calculated, the turn number without acquisitions, that would be helpful as well?
Ronald L. Hoffman - President and Chief Executive Officer
I will let Rob answer the question more specifically but I would say some of the acquisitions that we did such as Paladin, even Markem to the degree. We acquired companies that have a… let’s say a low inventory turn that we have to work to improve so that does impact our year-to-year number, just off what we acquire typically and certainly I was guilty of this is as I own Tulsa Winch.
Manager’s running company out of the cash of their pocket, out of their generation sometimes don’t focus on their inventory the same way that we are certainly focusing on it today. We give the inventory turns as a barometer of the health of a company and its engagement in its markets.
So, that is why we put great emphasis on it, so we believe that there are considerable opportunities, continue to improve at Dover’s inventory turn, and our companies are very committed to that. Rob, I will let you add from there.
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
Yes, I guess. I guess Wendy, your question is, do we continue to see opportunity, broadly for us, Dover.
The answer is obviously yes, that we are still at 6.5 turns and we do expect to get the 8 in time. Typically that takes probably a year to two in many cases for companies, typically the acquisitions to get there and there are some companies that have some structural challenges, but I would say on balance we will continue to see improvement in working capital.
We are not obviously done yet on metrics, but we are very committed and I think the operating companies over the last… really two years since this program was launched have shown a lot of energy and put a lot of emphasis on it.
Wendy Caplan – Wachovia Capital Markets
Thank you and have you calculated that number, the turn number excluding the recent acquisitions or…?
Robert G. Kuhbach - Vice President, Finance and Chief Financial Officer
We can get you that number Wendy.
Wendy Caplan – Wachovia Capital Markets
Okay. That would be helpful and just one more cash question as a follow on.
Can you review Ron, your and the Board’s thoughts on cash deployment and priorities as we head into ’08?
Ronald L. Hoffman - President and Chief Executive Officer
Well, I think we certainly showed flexibility in our strategic capital allocation in ’07. In ’05, ’06 we had great acquisition opportunities and we deployed our dollars there.
I think certainly we have a long record of increasing our dividends year over year, I can’t speak for the board but certainly that’s a long-term record, it’s likely to be sustained. I think as we look at them and our allocation of capital between share buybacks, CapEx and acquisitions, certainly our capital equipment requirements declined in ’07.
I would anticipate maybe being on par or slightly down as we look at ’08, that means that then the dollars will be allocated between share buybacks and acquisitions. We kind of already committed to a share buyback program that if it’s the right economic use of those dollars.
We will continue to stay deployed in that program. If we have some acquisition opportunities that significantly outweigh those opportunities then we will take advantage of those.
So, it’s kind of hard to call the exact number Wendy, other than I think, Dover’s posture on capital allocation is much more value oriented and much more looking at where we create the most value relative to the risk involved in the spending of those dollars. So, I guess I would like to say if you have to make a judgment call there, judge us on the flexibility we showed this year.
Wendy Caplan – Wachovia Capital Markets
Thanks very much, Ron.
Ronald L. Hoffman - President and Chief Executive Officer
I’d like to thank everyone for joining our call today. I’d like to comment, the 2000 year, was a very positive year of progress in Dover.
We had record EPS performance. We continued to build on a nice track record of growth year-over-year for a number of years now that we’ve sustained that.
We’re generating strong cash flow. We’ve exhibited nice capital allocation discipline.
And we’re excited about the opportunities of 2008, and look forward to chatting with you over the course of the year about our progress in that area. Thank you very much.
Operator
Thank you. This does conclude today’s teleconference.
You may now disconnect.