Dover Pricing Spineometer: 2 of 5 Vertebrae

Dover, a global manufacturer of industrial components for end-market industries, had a somewhat positive Q3 2023. Revenue was relatively unchanged at $2.1 billion yet earnings before interest, and taxes rose 81% to $673 million over the same period last year.

A review of Dover’s 24 October earnings call and financial report provided insight regarding the importance of pricing on performance.

Richard Tobin, CEO of Dover, takes a disciplined approach to pricing. Early in his statements, he said, “Margins performance in the quarter was exceptional, reaching an all-time high driven by productivity, cost controls and disciplined pricing.”  The extent of his pricing discipline became clearer as the conversation continued.  When asked about the possibility of stoking demand with lower prices or filling the distribution channel, Richard Tobin said, “We’re not going to get into a situation where if there are kind of topline headwinds that we’re going to have to start playing price to drive growth.”  And to ensure his point was heard, he stated, “We had a lot of discussions around here about incentivizing revenue in 2024 driving revenue, but then you start touching on things like price and you start touching on things like payment terms, and we’re not going there.”

Strategically, this is part of an overall sound strategy.  Research has shown that stuffing channels with inventory increases overall costs and therefore reduces productivity and demand, in the long run.  Yet pricing discipline is far greater than refusing to reduce prices to stimulate demand.  It also moves into areas of new offering pricing, price negotiations with customers, price waterfalls and commercial policy, and sales incentives to support strong pricing.

All of these areas would benefit from a strong pricing department at Dover.  Moreover, given the dynamics of their company, industry, and regulatory environments, the pricing team should have a significant strategic bent.

For example:

1. Beyond internal product development, Dover has been and is shifting its portfolio through mergers and acquisitions, each of which needs to be evaluated from the perspective of pricing potential and then pricing systems integration.
2. Dover works in some of the more heavily subsidized and politically hot-topic industries such as heat pumps in Europe, CO2 refrigeration in supermarkets and light industry, and clean hydrogen production with equipment for handling, compression, and dispensing H2. Research has demonstrated that businesses undergoing rapid change benefit from a strong strategic pricing capability.
3. Dover operates and serves markets globally. Commercial policy and pricing dynamics in North America, Europe, and Asia are each distinct.

Industry benchmarks suggest Dover would have 17 to 85 professionals focused on pricing. Given the dynamics of its offering portfolio, the markets it serves, and the competitive environment, we would expect Dover to have a robust team and be well within the middle of this range.

Research into the investment by Dover in pricing yielded underwhelming results.  Though a pricing operations analyst could be identified, few other professionals listed pricing itself as their primary responsibility.  Most professionals that mentioned pricing as a capability were in sourcing.  Procurement is not the same as pricing.  Other professionals listing pricing as a capability were in product management, sales, and finance.  Our research did not uncover a dedicated pricing capability.

While strategically, Dover’s leadership regarding price discipline is strong.  Operationally, we suspect there is an opportunity for improvement.

Given the importance and capability of pricing at Dover as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of January 2024.

Dover Pricing Spineometer: 2 out of 5 Vertebrae.

DOV (Dover Corporation) fell slightly from 133 the day prior to their earnings call to 129 one week later. FY 2022 revenue of $8.5 billion with a 16% operating margin and P/E ratio near 21.

For FY 2022, a 1% improvement in price would yield 6.2% improvement in operating profits holding all else constant at Dover.