Thank you, Shelby. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through August 15, and a replay link of the webcast will be archived for 90 days. Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn the call over to Rich.

Thanks, Jack. Let's start on Slide 3. Our results are consistent with our internal forecast for the second quarter. The businesses that we pointed out at our recent Investor Day demonstrated strong performance, with heat exchangers, natural refrigerant systems, and polymer processing all achieving growth of over 20%. During the quarter, we faced operational challenges in our vehicle service group’s main production facility due to an ERP implementation, leading to an estimated $50 million loss in revenue and about $0.10 impact on EPS. This is my responsibility. The team has been very effective in enhancing efficiency related to fixed costs, SKU management, and vertical integration over the past 18 months, which is reflected in our margin performance as we conducted a necessary ERP upgrade, essential for our e-commerce goals, while completing a large capital expenditure project that, in hindsight, was overly ambitious. We exited June with significantly improved production performance at that site, and we will do our best to recover the lost volumes in the second half. We have a positive outlook for the second half of the year and are refining our annual EPS guidance to between $8.85 and $9. Since the beginning of the year, we anticipated that 2023 performance would be more weighted to the second half due to post-pandemic destocking in the industrial economy and a gradual recovery in several of our end markets. The seasonality of second half earnings aligns with what we've experienced in the years before the pandemic. Underlying demand remains strong across our portfolio, with a significant amount of business already in the backlog. We took proactive measures to adjust our cost structure starting in the latter half of 2022 and have continued these structural cost reductions throughout 2023, which has led to tangible earnings benefits. Consequently, we are less dependent on top-line volume or price changes to meet our forecasts in the second half. With our solid demand outlook, adaptable business model, and execution strategy, we are confident in achieving our target for the second half. We also see a robust foundation being established for 2024. A large part of our portfolio has seen secular or cyclical growth that should continue across various macro conditions, and we are actively increasing capacity to maintain our competitive edge in these markets. We expect to see strong benefits carry over into 2024 from previously announced cost reduction efforts. These organic strategies, combined with a strong pipeline of acquisitions and substantial cash flow generation, will keep us on track to meet our long-term growth and value creation objectives that we outlined during our Investor Day in March. Let's go to Slide 4. Consolidated organic revenue was down 3% in the quarter despite growth in 3 of the 5 segments due to expected comparable volume declines in several end markets and the aforementioned shipment disruptions in the vehicle market, which cost us 2% to the top line. Organic bookings were down 8%, resulting in a book-to-bill of 0.92, reflecting better lead times across the portfolio and continued strong shipments against backlogs in our longer cycle and secular growth exposed businesses. As a result, our backlog continues to normalize, but still remains elevated relative to the pandemic levels. Segment margin was 20.2%, with margin performance preserved despite negative mix and lower volumes due to proactive cost containment actions and lower input costs. We expect the roll forward of these actions together with more normal demand seasonality to drive sequential and comparable operating margin improvement in the second half. Let's skip to Slide 5, and we'll go through some detailed results on the quarter. Engineered Products was down 8% organically in the quarter. The waste handling business posted a particularly strong quarter, improving chassis availability and aftermarket attachment rates driving solid growth in volumes and new orders. We are presently taking capacity reservations for 2024 and we will be ramping production to meet demand progressively over the balance of the year. Margins were down 50 basis points year-over-year, principally driven by lower volumes in the vehicle aftermarket which offset the robust margin improvement in waste handling. Clean energy and fueling declined 9% on an organic basis as the final quarter of comps impacted the top line and margin mix. Vehicle wash and clean energy were down slightly in the quarter as distribution inventories were brought down in line with the increased cost to carry on higher interest rates. Channel checks indicate that we are now at appropriate levels for expected second half demand. Margins in the quarter were down 100 basis points on lower volumes and mix, but partially offset by significant cost reduction actions taken in the retail fueling business as we pivot this business to margin and cash flow maximization. Imaging and ID was flat organically on solid growth in our core marketing coating business in Europe and the Americas as well as strong sales in software and serialization. Shipments in Asia were lower. FX remained a negative headwind to absolute revenue and profits in this segment given its large base of non-U.S. dollar revenue. Margins in Imaging and ID were strong at 23% and improving 40 basis points on pricing and cost controls. Pumps and process was up 1% organically in the quarter, with particular strength in polymer processing equipment, precision components, thermal connectors, and hygienic dosing systems. Volumes in industrial pumps were softer due to channel inventory reductions. Top line in climate and sustainability technologies were about 4% organically, demand trends remain robust in heat exchanges and CO2 refrigeration systems driven by global investments in sustainability. The segment posted a strong 7% margin in the quarter, up 210 basis points year-over-year on strong volume conversion productivity and positive price cost and mix of products delivered. I'll pass it to Brad from here.

Thanks, Rich. Good morning, everyone. I'm now on Slide 7. The top bridge shows our organic revenue decline of 3%, driven by declines in Engineered Products and Clean Energy & Fueling. Acquisitions contributed 1% to the top line in the quarter, and FX translation was a 1% headwind. FX headwinds resulted in a $0.02 negative EPS impact in the quarter and $0.09 in the first half. Based on year-over-year exchange rates, we expect FX to be an $0.08 tailwind to EPS in the second half of the year. From a geo perspective, the U.S., our largest market, was down 9% in the quarter due to expected lower volumes in the aboveground retail fueling segment as well as lower shipments from vehicle services in North America. Europe was down 1% and Asia was up 2%. China, which represents about half of our revenue base in Asia, was up 5% organically in the quarter. On the bottom chart, bookings were down year-over-year due to normalizing lead times in our shorter-cycle businesses and strong shipments against elevated backlogs in our long cycle and secular growth exposed businesses. Now on to Slide 8, our cash flow statement. Year-to-date, free cash flow came in at $348 million or 8% of revenue and represents an increase of nearly $250 million year-over-year. As discussed previously, with supply chains improving, we have been actively working to liquidate our working capital balances in 2023. We expect that trend to play out in the second half of the year as higher shipment volumes in the third and fourth quarter should result in a reduction of inventory balances between now and the end of the year. This trend is in line with our normal seasonal pattern, as cash flow generation has historically improved in the second half of the year. Our forecast for free cash flow remains on track for between 15% and 17% of revenue. With that, I'm going to turn it back to Rich.

All right. Let's go to Slide 9. Here, we show the growth in margin outlook by segment for 2023 that are underpinned in our current time log trends. Our backlog remains elevated across all segments driven primarily by extended backlogs in our longer cycle and secular growth exposed businesses. As our lead times continue to normalize and new capacity comes online, we expect these backlogs to continue normalizing through the end of the year. We expect Engineered Products to return to growth in the second half of the year, driven by continued strength in refuse collection vehicles in aerospace and defense. Our waste handling business is fully booked for the year with the possible upside if chassis availability further improves. We expect vehicle aftermarket shipments in North America to recover after the temporary disruption in Q2, and the business should remain relatively stable year-over-year in the back half. We expect margins to improve in the second half on positive price/cost tailwinds, solid volumes, and benefits from our recent productivity capital investments taking hold. In Clean Energy & Fueling, it's expected to return to growth in the second half of the year against easier comparable periods as the end market conditions and channel inventories normalize. Quoting activity for hydrogen infrastructure components remains robust, and we are working to expand capacity for select products, including vacuum jacketed piping in cryogenic valves. We expect full year margin improvement in Clean Energy & Fueling driven by stronger performance in the second half on volume recovery, improved mix, and continued proactive restructuring savings in retail fueling. Since initiating our fundamental transformation of the retail fueling cost structure last fall, we have initiated or announced $60 million of structural cost reductions in this business. Imaging and ID is expected to continue its stable performance, albeit against tougher comps in the second half, driven by stable outlook in core marketing and coding and serialization. Software full year margins should remain at attractive levels for this segment. Pumps and process equipment is expected to remain roughly flat organically in the second half. Thermal connectors continued to grow at a double-digit clip with some notable customer wins. Following a record Q2, Precision Components continues to book and ship at robust levels with a notable mix in business towards energy transition markets, polymer processing is booked for the year. The biopharma environment is improving with market conditions such as FDA approvals for new promising therapies and recovery in biotech funding and inventory stocking all showing improvement as indicated by our customers who have released results over the past few days. We expect margins in this segment to remain best-in-class levels with performance skewed towards the end of the year on stronger volumes and mix improvements. Order rates and biopharma will be the watch item from here with the potential recovery to be a material tailwind into 2024. Climate and Sustainability Technologies top line trajectory is expected to be steady in the second half of the year. We are operating close to capacity in heat exchanges for heat pumps with incremental capacity coming online over the next several quarters with direct labor at less than 10% of revenue, the conversion on growth in heat exchanges is compelling. Demand for CO2 refrigeration systems remain solid, and our capacity build-out is on schedule. We are starting to have productive conversations for our door case business with large retailers for their 2024 plans, which is an encouraging indicator of future demand. Beverage can-making is expected to be down as the industry is digesting recent record capacity additions. We expect continued margin improvement in 2023 on volume conversion, productivity gains, and improved mix. Our margin performance in refrigeration has been very encouraging even before the material accretive impact of North American CO2 volume.

Thanks, Rich. The harm to the organic sales from price increases and any shifts in business mix do impact us, but we also believe the demand is still strong. We expect to recover from price pressures and are looking at ways to optimize our cost structure to meet the challenges while maintaining margins.

Let's go to Slide 10. Here is the confidence we have in the underlying components that drive our forecasted double-digit EPS growth in the second half. We have been vocal about the negative impact of interest costs on channel inventories and have been encouraged that the drawdown, while a headwind to the first half revenue has been orderly as end market demand has largely held up. Recognizing that our markets are not immune to these dynamics, we have proactively enacted cost containment actions to derisk the second half of the year and also provide $40 million of incremental carryover cost savings into 2024, with roughly half the savings coming from retail fueling as part of our strategy to pivot to margin and cash flow maximization of this business. We believe our growth and conversion forecast is achieved based on our revenue visibility and backlog, channel inventory stabilization, secular growth tailwinds, and recovery in end markets. So let's go to Slide 11. We view 2023 as a transition year for our business from a supply chain constrained inflationary high-demand environment of 21 to 22 to a more normalized activity supported by various macro trends. As we move to the second half of the year, the majority of the destocking headwinds are behind us, and recovery across several end markets we are building solid momentum for 2024. We are investing meaningfully behind our secular growth exposed end markets to ensure we have sufficient capacity to serve our customers. We are proactively engaging in new product development, often in co-development with our OEM partners to drive product improvement so they win share in the marketplace. We believe our biopharma and retail fueling dispenser businesses, which were faced with expected market-driven headwinds in 2023, are poised for strong margin accretive recoveries in 2024. All in all, we believe at least 40% of our portfolio is experiencing tailwinds that are decoupled from broader industrial production with additional pockets of growth in our market-leading niche industrial franchises. This growth outlook together with the carryover benefit of cost actions into '24 sets up a solid foundation for our growth prospects in line with our financial commitments from our Investor Day in March. So let's move to Slide 12. With our supply chains and operational environment normalizing, our forecast for 2023 is embedded in a return to pre-pandemic seasonality. The year has played out more or less as we expected thus far with more challenging half of the year now in the rearview mirror. The path from here is straightforward. Underlying demand is solid across our business, and we are confident in our ability to leverage a flexible operating model and centralized business systems to drive consolidated growth and margin accretion to achieve our full year guidance. Our inorganic pipeline remains robust. We remain committed to optimizing our business portfolio and evaluating some interesting options, which we hope to conclude in the second half of the year. That's it for me. I'll turn it back to you, Jack.

Shelby, you can go to the Q&A.

We'll take our first question from Andrew Obin with Bank of America.

Just a question on sort of negative bookings, right, and revenue decline, generally. This destock takes more than 1 quarter, and I appreciate that you do have visibility, but I think versus our model, we were a bit surprised by the revenue. So what gives you confidence that this connection between bookings and destock that this is a 1-quarter event and does not sort of cascade into Q3?

Yes. I believe it's important to separate our comments about destocking from bookings to some degree. The bookings figure is tied to the decreasing backlog, which we anticipate will continue to decline gradually. We've been clear about this throughout the year. What has changed in the first half is the understanding that inventory carrying costs in the channel have surged significantly. For instance, the cost of financing inventory at the distribution level has increased by 600 to 700 basis points. It’s not surprising that companies like Dover are planning to focus on cash flow and reduce inventory. Many were prepared for this. However, the short-term negative impact of carrying costs was likely underestimated. Based on our observations and channel checks, we believe that most of the reduction in carrying costs is behind us. Therefore, we won’t face that negative impact in the second half of the year, but I wouldn’t focus too much on the bookings aspect, as they will reflect the decrease in backlog, and we expect a positive change in Q4.

And just maybe looking and following up on pumps and process. Can we just go and be getting a lot of questions on that just by verticals, just a little bit more visibility on bookings and revenue visibility into the second half because it is a big focus for investors, particularly the timing of biopharma recovery.

I think it's important to note that bookings in biopharma are going to be a key focus moving forward. We've listened to our customers and recognized that there has been a decline in bookings as they prepare for what’s ahead. However, we're starting to see signs of recovery. We were proactive in reducing inventory, so we anticipate a positive shift in bookings for biopharma in the second half of the year, though the extent of that increase remains to be seen. On the industrial pump side, there was a bit of an impact from destocking in the channel, but we believe that has also reached its lowest point. The area that significantly influences our performance is polymer processing. At one time, we had nearly two years' worth of bookings in our backlog, but that has been gradually decreasing as we fulfill orders. Overall, there are varying dynamics between long cycle and short cycle orders, with the biopharma segment being particularly crucial for our margins if we see a positive turnaround.

And we'll take our next question from Andy Kaplowitz with Citigroup.

Rich, maybe following up there. You've been, I guess, somewhat cautious on the macro, but you now have a whole slide on Dover strong foundation for '24. So maybe you could overlay your latest thinking on the macro versus that foundation. Would you say in the macro overall is holding up better or worse than you expected. And I know it's early. But given the backlog you have and the additional restructuring benefits for '24, I think you kind of mentioned that '24 could be in line with your sort of longer-term algorithm, which I think is 4% to 6% longer-term growth and 30% incrementals. Does it feel like there's a higher probability of that for '24?

Yes. I mean, if you go back and read the transcript, I think I said that about 4x. We think that we knew we had some kind of secular headwinds between the biopharma side and the EMV roll off, we had that coming. That's part and parcel why I think that we were pretty transparent about what we were going to do to pivot our Fueling Solutions business. And despite having the negative headwind on biopharma, we have preserved our margin in that business. So any incremental volume that we get there should be very attractive. In terms of the total macro, I guess we're happy that demand has held up, right? I mean, I think you see part of the negative headwind to some of the destocking because everybody is destocking because they're afraid of the macro to a certain extent. I think that's been exacerbated a little bit by the cost of capital working its way through the system. Where we go from here? I guess we're positioning for a soft landing. Maybe that's optimistic and not generally in our nature around here. But we think the investments that we've made on our growth platforms, as I mentioned in the presentation, are growing at 20-plus percent. And if we get some recovery on some of the secular headwinds, we can easily revert to what we had laid out as our financial objectives. Coupled with the fact that we've got a material amount of cost savings that roll from '23 into '24, that's a pretty good start in terms of margin.

Rich, that's helpful. Can you discuss the positives and negatives you're observing in DCST? You've mentioned some potential incremental weakness, but overall the business appears to be strong. Last quarter, there was a debooking in door cases. Where do you stand on that? Do you still anticipate seeing that in the second half? Please share your insights on the business's dynamics, as you noted that it seems to be performing well overall.

Sure. Belvac had a good run, but we expect a decline as it's a cyclical business and capital expenditures in this field are likely to decrease. It's important to be cautious with margin assumptions for Belvac because we had several engineering projects that included more than just equipment work. While the equipment generates healthy margins, these projects diluted overall margins. The shift towards becoming more of an integrator boosted revenue, but now we see a decline in top-line figures for Belvac. However, I believe there are solid opportunities for preserving margins there. Currently, we are sold out of heat exchanges, and there's strong leverage potential in that area. Labor represents 10% of our cost of goods sold, so that's an important factor to consider. We are experiencing 20% growth, and I'll leave it to our HVAC team to discuss specific growth rates, especially concerning heat pumps. We're in the process of increasing our capacity by 40% to 50%, which will be ready by mid-2024, addressing concerns about the cyclical decline in Belvac. In Refrigeration, we achieved our highest margin performance to date in June, even before fully ramping up capacity at our new CO2 plant, which I plan to visit soon. Although we may not experience significant benefits from the NAFTA CO2 growth at this early stage, we anticipate that as volume increases, it will positively impact margins in refrigeration. Combining our June exit margins in core refrigeration with expectations for robust growth in CO2, which has been successful in Europe, paints a promising picture. I also mentioned we're having discussions with our clients about demand for core refrigeration in 2024, and so far, the outlook seems quite positive.

We'll take our next question from Joe Ritchie with Goldman Sachs.

Can we just maybe just go back to the ERP issue? And Rich, maybe just talk us through a little bit of what happened this quarter? And then it seems like it's largely behind you, but just want to make sure that there aren't any lingering effects in Q3.

Yes. I've been doing ERP implementations for 30 years, and they never go right. This one went a little bit more wrong than usual. Look, at the end of the day, I mean, I own it, right? I mean we basically put a bunch of CapEx into our main plant in Madison, Indiana. That's not completely done. And at the same time, I think if you recall the presentation we made about this business, we had harmonized our SKUs meaningfully. And quite frankly, in retrospect, trying to do an ERP when you're doing all that work on the manufacturing floor was misguided on my part. So that was just too much change to move to a new ERP system. At the same time, we have really trouble getting products out the door for the entire quarter, but it was worse at the beginning, and we got progressively better as we exited June in terms of our production. I don't think it's going to be a material headwind from here. I don't think we're completely out of the woods yet, but I don't think it's something that we will be talking about earnings from here. I mean, we do ERP implementations year-round, and we've been doing them for years. Just I think it's my fault. I think I pushed one on a business that was too much to chew, but we're really excited about the opportunity that we have in e-commerce in this business, and you need an operated ERP to affect that e-commerce change, and it kind of blew the plant up.

Yes, I'd just echo what Rich said that we exited June at a pace that puts us on track for what we forecast for Q3. And as he said in the script, you can go back and look, we're going to try to recover, but we're not forecasting a recovery of that $50 million. So I think we're being prudent in terms of the way we think about the trajectory of that business in North America.

Got it. No, that's helpful. And obviously, I always appreciate the transparency. My follow-up comment, I guess, would be just around the business. So the margin profile of the business is trending a little bit lower than you originally expected for the year. Talk to us about some puts and takes on the margin side, fully recognizing that biopharma is the swing factor.

Biopharma is the key variable. We've discussed it thoroughly. You should consider the insights from Sartorius, Danaher, and Thermo as they have a better understanding of when the changes will occur. I can assure you that operationally, we are well-prepared for when that pivot happens. Although we noticed a decline in industrial pumps due to some unexpected destocking, we believe that situation has mostly resolved. On the other hand, the success of our polymer processing and precision components has been strong throughout the year, which helps offset the negative impacts from biopharma. However, the mix of these factors is impacting our margins negatively. Interestingly, if those areas grow faster than anticipated, the consolidated margin may decrease, but our overall profit performance remains solid, as both sectors contribute positively to the consolidated portfolio margin.

We'll take our next question from Jeff Sprague with Vertical Research Partners.

Rich, can we just kind of talk about the margin progression a little bit sequentially. So I guess in EP, right, you have about a 200 bps hit on the ERP issue. Just kind of what the trajectory is out of Q2 as you normalize there? And then on DPPS, right, you said margins up in Q4 year-over-year. I guess that implies you're still down year-over-year in Q3. But would you expect sequential improvement in Q3? Or is the margin improvement in DPPS all kind of Q4 weighted?

Okay. Yes, for DEP, you got it, right? So the margin decline in Q2 is solely on the fact on the VSG volumes coming out. As we move forward from here, you've got the capacity ramp and ESG that comes through, right? So that goose is the top line, and that's let's call that at par margin for DEP. You've got the recovery in VSG. And based on our backlog, we've got increased margin performance in defense just as we ship against the backlog. So that basically gives you the answer for second half margin performance there. On DPPS, right now, our forecast shows a negative headwind for Q3 solely on biopharma. Our expectation, as I mentioned in the comments, depending on order rates and everything else, is that for Q4, we'll do better based on mix and some recovery on biopharma because it's not as if we're not shipping anything in biopharma; it's just the comparative headwind rolls off by the time we get to Q4.

Right. And then thinking about price cost, Rich, I assume that's sort of kind of buried in your growth conversion in the bridge. But what's going on with price cost in the back half of the year?

The price benefit is less in the back half of the year and the cost is based on where we're tracking right now. So we don't basically make any assumptions in terms of other than leverage. We don't make any assumptions about either positive or negative on the input costs. We'll just see how that develops over the second half.

Maybe just one last question. The questions I asked about margins relate to Q3 versus Q4. We had a Q2 that you described as in line with your expectations excluding the ERP, but we didn't fully grasp the message. So, is there anything else you would like to share about Q3 in relation to Q4 or the balance between those two?

I see your point. I often get criticized for being too negative at these conferences, and now I’m not seen as negative enough when it comes to segmenting the quarters. I believe Q4 will exceed expectations, while Q3 will be more or less consistent. However, I advise caution regarding Q3 due to the negative performance in biopharma, which primarily affects margins rather than top-line results. Moreover, we anticipate certain businesses will have significant shipments in Q4 as we work through inventory depletion. We won't be providing quarterly guidance, but I think it's reasonable to expect that Q4 will be stronger than current models suggest.

Yes. It sequentially improves off of Q2 into Q3, but year-over-year, like Rich said, we're looking at a more comparable point on year-over-year. But again, we're expecting margin improvement for the full year for the total company. So therefore, in the fourth quarter.

And we'll take our next question from Steve Tusa with JPMorgan.

In response to Jeff's question regarding sales, I'm finding it a bit challenging to understand the sequential increase. To achieve a sequential growth of 9% from half to half, we need to reach around $4.5 billion to $4.6 billion in the second half, but currently, we are trending at 2.1. I'm curious if you're suggesting that this growth will mainly come from backlog, implying that a significant improvement in bookings may not be necessary.

Yes, I don't believe we need a significant improvement in bookings since we have to be cautious about the long-cycle business. We categorize our segments, and within those segments, we have a variety of business types. As a result, we are likely to see a considerable depletion in our backlog. For example, Maag is sold out for the year, and we will be shipping against that for the remainder of the year, which may make our bookings appear slightly negative. However, we do have strong bookings in Precision Components, and we anticipate an improvement in bookings for biopharma as well, though it's uncertain if this will happen in Q3 or Q4. I encourage you to review our presentation, particularly Slide 10, which outlines what is needed from a conversion standpoint. If we consider a mid-0.30% conversion rate and backtrack into the EPS accretion we require for the latter half of the year, it doesn’t seem impossible, especially since we have undertaken significant cost restructuring and actions that align with our revenue conversion needs. Without these actions, meeting the revenue requirements would be quite challenging. The efforts we initiated in the latter half of last year have positioned us well, despite uncertainties in the macroeconomic environment, such as potential interest rate hikes that may not be beneficial. Our confidence in the latter half of the year stems from having achieved over half of the necessary EPS conversion and cost savings already.

Did you expect bookings to decline further sequentially, or have we reached the bottom of the bookings now?

It's difficult to predict. It's possible we could see flat bookings in the third quarter. There is an understanding in the market that production lead times have decreased. If our bookings, which are above normal levels, essentially support our revenue for the next year across most of our portfolio, we may not need to start ordering until early in the fourth quarter. Whether we can influence that through market signals brings us to our plans regarding pricing for 2024 and what we will communicate about SWEP. Interestingly, we are sold out in SWEP, but if you looked at our bookings for SWEP, you might assume we have no bookings for the fourth quarter due to the nature of that business. It operates on a capacity reservation basis rather than traditional bookings. Therefore, I wouldn't get too excited about bookings. I can confirm that we will ship based on Belvac and Maag, which will have a disproportionately negative effect on those two segments. For the rest of the portfolio, I believe we are likely hitting a bottom in bookings right now.

All right. And then just one last one for you, Rich, just philosophically. I mean, the Slide 11 has like 9 different businesses, and that's only 40% of your portfolio. This has always been a bit of a complex portfolio, but the amount of things that you've had to walk through today, the amount of things that have happened in the last couple of quarters, whether it's the $90 million pushout, the ERP in somewhat obscure businesses, albeit pretty good businesses. I think the only people that dislike having to dig into these little $100 million businesses, more than it sounds like you talk about them is us maybe. At what point do you kind of really take a much closer look at this portfolio and just kind of say it's just too complex to kind of run and manage, let alone invest in? I think that's kind of one of the issues here that people are having. Is there just always something moving around.

Yes, I understand, and I will respond in two ways. If you refer back to the transcript, you'll find that I discussed the portfolio, so you can interpret that as you wish. I believe that in 2024, the diversity of our portfolio will surpass certain long-term trends, and this will serve as an advantage next year. It may not have provided a benefit in the past 18 months due to the significant negative impact from biopharma, to be honest. However, I am confident that in 2024, the efforts we've undertaken and the diversity of our portfolio will prove to be beneficial, rather than being limited to a singular market exposure that might seem straightforward.

So can you grow double-digit EPS in '24?

Too early to tell. Too early to tell. I think it's going to be dependent on the macro, but I think that I can tell you that where we've invested, we're really excited about what we're getting out of it. And I think there are parts of our portfolio that have had negative headwinds. You can't really see it just because of the individual pieces that are really inflecting the other way. So I know that waste handling is not exciting, but the fact of the matter is that business could be up substantially in 2024.

And we'll take our next question from Michael Halloran with Baird.

So the short cycle side of things, just some clarification here. I think basically what you're saying is the sell-out in the channel is actually pretty stable, pretty healthy sell-in because of the inventory destock side of things, that's where the headwind is and the expectations from here for that sell-out piece to remain relatively stable. I mean, that's a fair characterization.

Yes, I think the end market demand has been reasonable from the distribution side of the portfolio. The sell-out metrics look positive. However, our distributors are signaling that the cost of capital on their inventory is becoming difficult to manage, so they are opting to wait since they are aware that our lead times have improved and they want the product when they can get it. I understand this, as everyone is trying to optimize cash flow due to the costs associated with maintaining that cash flow, including us. Therefore, I don’t believe this issue is unique to distribution. The good news is that overall, end market demand has remained quite healthy. Yes, we have two businesses that have significant exposure to China, and one of them is experiencing poor demand.

We'll take our next question from Julian Mitchell with Barclays.

And I definitely listened to the exportation to check the transcript. But I wanted to put a finer point on a couple of things. One was just third quarter sales, Rich, are we assuming from what you said about shipping out of backlog in Q4 that sort of third quarter sales are flattish sequentially, and then you'll get this lift in the fourth quarter as the backlog depletes. And with your comments on bookings to be sort of flattish Q3 and then inflating maybe Q4. Were those sort of sequential comments as well? I just wanted to check that, please.

Yes, Julian, I want to clarify that I'm not being overly negative about Q3. It is expected to improve sequentially. However, based on our order visibility and shipping timelines, Q4 is anticipated to outperform compared to the past. It should align more closely with our pre-pandemic performance, where we typically had strong shipments in Q4. The focus will be on production efficiency in Q4, which will depend on the order rates from Q3 to Q4. Some areas of our business will require ramping up production in Q4 to prepare for 2024. We plan to begin taking orders for 2024 soon in segments of our portfolio that sold out this year. So, while I don't want to be negative towards Q3, I believe it will be a solid quarter, but Q4 is expected to be comparatively stronger. Regarding order rates, it's something we'll monitor. We anticipate shipping a significant number of backlogged orders in Q3, which could lead to a book-to-bill ratio of less than 1. Our expectation is that Q4 should show an increase, at least by definition. Our hierarchy remains unchanged. We haven't included any new items in our capital expenditure plans as we have already spent significantly over the past few years on revitalizing parts of our portfolio, which is now behind us. Overall, our capital expenditure as a percentage of sales is declining this year, and this trend is expected to continue, even with the capital expenditures associated with our growth initiatives. This brings M&A to the forefront. While competition is lower and there aren’t many assets available, we recognize that private equity is currently somewhat stagnant for understandable reasons. We see some appealing opportunities, but we intend to maintain our discipline regarding returns. As a reminder from last year, we assess our cash flow mid-year when reviewing our deal pipeline, and we deployed about $0.5 billion last year.

$0.5 billion

$0.5 billion in an ASR in September of last year. So we've got a Board meeting coming up, and we'll go through all those dynamics again, and we'll decide what to do.

Sorry to beat on this ERP and I will check the transcript in case I missed it. But just, Brad, you said you're not including a recouping of the $50 million that was disrupted this quarter. Does that go into past due? Or did you lose any of those orders?

You lose the order, Deane. A lot of that is sold into distribution and that the product is available; you would lose out of the order. So we'll recoup some of it, but I think that we will not recruit all of it. My commentary was more around our view that the back half is not dependent upon recovery of the $50 million. I want to be clear, that's the point really at the end of the day. The team there will try their best. But it is a business that, as Rich says, our customer base stocks these things in distribution and they move out. And if it's not there, they go to the next available competitive unit. So that's the way we see it.

Not explicitly, but I think the way we're working through it is that it's mainly driven by, I would say, more towards the safety stock levels, the buffer inventory and raw materials in the materials flow where what we have to see is less inflow versus production to draw it down. And that's what's happening here in the second quarter. I mean, we did have slightly negative inventory through the first half of the year. But it's a heck of a lot better than it was a year ago, and we're continuing to make progress to make sure production is in excess of the inflows. That's the way we're working it. I think that's it, Jack. Okay.

And we'll take our final question from Nigel Coe with Wolfe Research.

Are you sure? Do you want to finish it off or should I ask the question?

Go ahead. We didn't want to cut you off.

Yes, don't worry. I'm joking. We appreciate your macro perspective. You were very early in expressing caution, and it seems some of the capital expenditure businesses might be showing signs of weakness, such as Belvac and Hill PHOENIX. Could you share your insights on these capital businesses? Is this related to higher rates or macroeconomic uncertainty? How do you see this developing?

Well, I mean, I think the Belvac is a cyclical business. There was a lot of capital that was put in during the pandemic years into can-making. We did fabulously in terms of market participation there versus our competitors, but we fully expect and have been preparing for over the last 18 months that there would be some roll down because you just can't keep at that kind of pace. Now having said that, I don't think it's a negative story either just because of the fact that the revenue was a bit influenced by some engineering work that we did at very low margins and while we sold the equipment. And we're actually working on some interesting IP related projects that may help us out to ride the CapEx. On the Refrigeration side, we had that order cancellation that we talked about at the end of the last quarter. That was very customer specific. The balance of the demand is decent. I think that there's a little bit of the same frictional costs in terms of labor availability and installation. That's not our problem; it's our customers' problem. The pace of that CapEx tends to be a bit choppy, but the conversations that we're having, and I think it's in the transcript, the conversations we're having about 2024 in terms of demand in that particular space are good. And I'm just talking about kind of the old traditional case business. Without even getting into natural refrigerants where we're growing at a very heady pace in North America right now off a low base. But based on the conversations that we're having, we feel very excited about where this thing could go.

Okay. That's helpful. A quick follow-on, if I can. Retail fueling, you mentioned focusing on and obviously, the restructuring actions that speak to that. You've talked about this before, but is this like a double and down of that strategy? Does this become even more of a focus on just cash flow as opposed to growth?

No. I mean I think we have individual strategies for every business that we have in the portfolio. Obviously, if you go back a couple of years ago, this was EVs taking over the world and the negative headwinds of EMV plus that the view of what these businesses were worth was, I think, completely overdone. We think that we've got 20 years of high-margin opportunity in that space. But having said that, we're just repositioning that business where we think that we've upgraded the entire product line globally, by the way, not just in the United States, that we can run that. We can run this business a lot leaner than we did in the past, and that's the actions you see us taking. We think we can get that segment to 25%. And you're seeing some of the building blocks working our way there.

That concludes our question-and-answer period and Dover's Second Quarter 2023 Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.