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Dover Corp  (NYSE:DOV)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, and welcome to Dover's Fourth Quarter 2018 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President of Corporate Development and Investor Relations. (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. Andrey Galiuk. Mr. Galiuk, please go ahead sir.

Andrey Galiuk -- Vice President, Corporate Development and Investor Relations

Thank you, Maria. Good morning and welcome to Dover's fourth quarter and full year 2018 earnings call. We'll begin with comments from Rich and Brad and we'll then open the call for questions. This call will be available for playback through February 19th and the audio portion of this call will be archived in our website for three months. The replay telephone number is (800) 585-8367. When accessing the playback, you'll need to supply the following access code, 6883448.

Dover provides non-GAAP information such as adjusted EPS results and guidance. Reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website dovercorporation.com. Our comments today may contain forward-looking statements that are inherently subject to uncertainties.

We caution everyone to be guided in their analysis of Dover by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. Also we undertake no obligation to publicly update or revise any forward-looking statements except as required by law.

With that, I'd like to during this call over to Rich.

Richard J. Tobin -- President and Chief Executive Officer

Thanks, Andrey, and good morning everyone from Bamee, (ph) Chicago. Let's get started on Slide 3. Q4 organic revenue growth was up 6. 2% for the quarter. Solid demand trends in Engineering Systems and an exceptionally strong performance in our Fluids segment more than offset the continued weak demand environment in Refrigeration and Food Equipment, particularly in can making equipment and food retail.

Adjusted Q4 earnings were up 17%, driven by top line growth, volume leverage and cost actions initiated in Q3. Adjusted EPS at $1.43 per share was up 25%, inclusive of $0.08 of favorable impact from tax. As we discussed at the end of Q3, we had some heavy lifting to do to offset the Q4 forecasted trading environment in Refrigeration and Food Equipment. The organization made a determinant effort to convert its backlogs, crystallize its cost-saving targets and focus on cash conversion with good effect. Despite the excellent shipping performance through Q4 in many of our businesses, bookings remained solid at the end of the quarter, posting a book-to-bill ratio above 1, which were broad based across the portfolio.

Our SG&A rightsizing initiatives is largely complete and during the quarter we began the first projects of our footprint rationalization plan, particularly with the three-to-one production site rationalization in Unified Brands, which is under way. In Q4 we have taken our initial restructuring charge of $5 million as a result of the announced footprint consolidation efforts, which we forecast to deliver $4 million into 2019 and annualized run rate savings of $18 million.

Finally, on the inorganic growth front, last Friday we completed the acquisition of Belanger, a leading car wash equipment manufacturer, which we announced earlier in the month. Belanger meets all of the criteria for inorganic investment in terms of market attractiveness, execution profile and return on invested capital that we had laid out at our Analyst Day in September. It's been a busy quarter for the Company. I am pleased that we were able to deliver top -- solid top line growth and generate significant cash flow from operations, while concurrently delivering on our productivity initiatives announced in September.

Okay, that's the -- balance of the opening comments from here I'll pass it on to Brad.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Thanks, Rich. Good morning, everyone. Let's go through the detail starting on slide four. As mentioned our results for the quarter were driven by strong demand in Engineered Systems and Fluids, solid margin conversion on revenue growth and cost actions.

Adjusted segment EBIT increased 9% to $285 million and adjusted margin was 15.7%, an increase of 80 basis points. This performance reflected strong growth and conversion in Engineered Systems and improved performance in Fluids, partially offset by lower volume in Refrigeration and Food Equipment.

Adjusted segment EBITDA was $352 million. Adjusted earnings were $211 million in the quarter and adjusted diluted EPS was $1.43, an increase of 25% over last year. The EPS increase was supported by share repurchases and a lower tax rate. Full year 2018 results followed the same narrative as the fourth quarter. Results were largely driven by strong growth across our Engineered Systems and Fluids segments, partially offset by lower volume within our Refrigeration and Food Equipment segment. Adjusted full year 2018 segment EBIT increased 4% to just over $1 billion. Adjusted EBIT margin was 14.8%, an increase of 30 basis points, driven by stronger conversion on revenue growth and by the impact of our margin improvement plan. The effective tax rate for the full year was 21.4% when normalized for discrete tax benefits, excluding the additional Tax Act regulatory guidance covered by SAB 118.

Now turning to slide five. Let's get into a little bit more detail on revenue and bookings results in the quarter. Fourth quarter revenue grew by 3.2% to $1.8 billion. Organic growth in the quarter was 6.2%, despite headwinds in Refrigeration and Food Equipment. The impact from FX and dispositions added headwinds of about 2% and 1% respectively. From a segment perspective, Engineered Systems grew $30 million or 4.3% organically (ph) and Fluids grew $118 million or 17.2% organically on broad-based activity across the segments. Delayed shipments in can (ph)-shaping equipment and week retail refrigeration markets drove a $39 million or 10.2% organic decline in Refrigeration and Food Equipment's revenue, the majority of which is due to the expected year-over-year decline at Belvac.

In the fourth quarter, our retail refrigeration business posted its lowest rate of revenue decline in 2018 at approximately 3%. Bookings increased 8% overall. Organic growth was strong at 10%, contributing to an increase in backlog over -- both over the third quarter of 2018 and the fourth quarter of 2017. Of note, Engineered Systems and Fluids organic bookings grew $86 million and $54 million respectively, reflecting broad-based market demand. Refrigeration and Food Equipment segment bookings grew $25 million organically on approved orders at retail refrigeration and exceeded revenue by $14 million in the quarter.

From a geographic perspective, the U.S., our largest market, grew 6% organically, where broad-based growth in Engineered Systems and Fluids was partially offset by retail refrigeration, which is primarily a domestic business. Europe was up 10% organically with strong performance across all segments and Asia was flat. Within Asia, China grew 6% organically, driven by strong growth in our Fluids segment. Finally, book-to-bill finished at 1.02, reflecting strong orders across our segments, including Refrigeration and Food Equipment.

Let's go to the earnings bridge now on slide six. Starting on the top, Engineered Systems adjusted segment EBITDA improved $11 million, largely driven by solid conversion on broad-based revenue growth across the segment, more than offsetting headwinds from FX and dispositions. Fluids EBITDA growth of $32 million reflects a combination of robust growth, better execution in retail fueling, as well as strong conversion on volume and other businesses. The $22 million decline in Refrigeration and Food Equipment reflects lower volume and negative business mix, particularly in our can making and retail refrigeration businesses.

Additionally, our margin improvement plan began to deliver results with our SG&A initiative contributing $22 million of savings to Q4 results. Going to the bottom of the chart, adjusted earnings from continuing operations improved $31 million or 17%, primarily driven by higher segment earnings, lower interest and corporate costs, partially offset by higher taxes on increased earnings.

Now on slide seven. Free cash flow for the quarter was seasonally strong, posting our highest quarterly cash flow for the year despite the strong revenue impact, resulting in higher year-end receivables. The fourth quarter is traditionally our highest cash flow quarter. Free cash flow for the year was $618 million or 8.8% of revenue, within our guidance from our Analyst Day in September. Cash cost of $52 million associated with our restructuring initiatives negatively impacted cash flow in the year. Excluding such non-recurring cash outlays, free cash flow was 9.6% of revenue.

Now, let me turn it back to Rich.

Richard J. Tobin -- President and Chief Executive Officer

Okay. Thanks, Brad. Let's go onto slide nine. Engineering Systems had a solid broad-based quarter with top line organic growth of 4.3%. Incremental margin conversion in the quarter was excellent, driven by favorable mix and cost actions, largely in the Printing and ID platform, despite a more -- a more modest top line growth rate in Q4 (ph). The industrial platform performed well across the board, as our CapEx-levered businesses continued to operate in a constructive demand environment and all posting top line comparable revenue increases.

Our ESG business continued to deliver strong results with a robust positive booking strength, building a runway to a solid forecasted performance for 2019. OKI, DESTACO and TWG all finished the year contributing solid single-digit growth and margin expansion; and Microwave Products delivered as expected in a robust military spending environment. Going into 2019, bookings for Engineering Systems remain solid. We expect this segment to contribute positively to both the top and bottom line, despite the forecasted FX headwinds on our businesses that are materially exposed to Europe, predominantly Markem-Imaje, digital printing and VSG.

The Fluids segment posted organic growth of 17% for the quarter with the majority of the portfolio posting double-digit comparable growth rates. Incremental margin was solid for the quarter as volume leverage and cost controls were able to offset the impact of unfavorable product and geographic mix. Our pumps and process solutions businesses had an excellent quarter with incremental margin performance in Maag, Hydro and Precision Components in excess of 35% in the period as a result of volume leverage, mix pricing and cost control initiatives outweighing input cost headwinds and tariff costs on imported components.

Fueling and transport posted exceptional top line performance for the quarter, as demand remained robust and we were able to clear the backlog that had been built as a result of our facility consolidations in DFS and OPW. Margin conversion while improving sequentially is the largest opportunity performance improvement going into 2019 and we are targeting to progressively track to the margin objectives that we laid out in September through the year.

Refrigeration and Food Equipment revenue declined in the fourth quarter with the segment organic revenue down 10%. We had expected another difficult quarter at Belvac and in retail refrigeration, the results came in line with forecast. Margin performance in the quarter was negatively impacted by volume in refrigeration and mix at Belvac. The segment also incurred transitory costs associated with product rationalization programs in refrigeration in preparation for our automation efforts to be built out in 2019. Positively, retail refrigeration bookings were up for the first time in six quarters during the period as project activity has increased.

As we presented in September, we've begun in earnest to address our footprint and productivity actions by starting in our Unified Brands business, as it is the clearest path to improving margins in the segment. We are planning -- we are in the planning and preparation phase for our automation and production consolidation programs for refrigeration and have committed 2019 capital spending to fund these projects. We are cautiously optimistic for improved revenue performance in 2019 for the segment, based on our initial 2019 order backlog in retail refrigeration and quoting activity, as you'll see in our full year guidance.

So let's move on to guidance. Our full year guidance is made up of the following: 2% to 4% organic revenue growth, 2% to 3% total revenue growth, positively impacted the acquisitions of 1%, offset by foreign exchange of 2%. We expect the FX impact to be concentrated in the first half of the year. You can see the tax rate -- I'm going to deal with CapEx on the following slide. The range on free cash flow conversion reflects the announced restructuring programs that there's a backup slide on, and an adjusted EPS guidance of $5.65 to $5.85. Guidance does not include unannounced footprint actions to be taken in 2019.

So let's go and take a look at the EPS bridge on the following slide. As a starting point, the 2018 EPS is normalized for a full year discrete tax items that you can see at the far left. Contributions to the 2019 EPS guidance are as follows: $0.39 from incremental SG&A rightsizing carried into 2019, as well as the impact for announced footprint actions. We have included supplemental slides in the backup for you to take a look at. $0.08 per share from the Belanger acquisition, which we closed January 25th. $0.19 to $0.39 of conversion of the revenue range and $0.15 from tax rate, which is a negative, as well as the share count reduction from 2018 repurchase program. It does not include any 2019 share repurchases, leading us to the EPS guidance.

The last slide is moving onto capital expenditure. CapEx is forecasted to increase in 2019 approximately 30% to 40%, driven by several significant projects. A $26 million (ph) greenfield plant to support the growth of our Colder connector business, which had an outstanding year and is a business that we have targeted for investment. The plant will become fully operational in 2020. An initial $15 million investment in automation in retail refrigeration to improve productivity and enable footprint consolidation, which is scheduled to come online progressively in the second half. Excluding these large structural investments, CapEx is in line with historical averages between 2% and 2.5% of revenue, despite significant investment in our digital initiatives.

To wrap up, Dover enters 2019 with solid momentum as represented by our Q4 organic growth rate, solid order backlogs across most of the portfolio and margin expansion potential, driven by volume and cost initiatives. We are delivering on our September commitments for cost alignment and reinvestment in the growth platforms, which have been included in the supplemental schedules. We believe we are well positioned to deliver solid top line growth and strong double-digit EPS accretion in 2019. Our guidance reflects a constructive demand environment, continued focus on margin improvement and rightsizing programs, as well as disciplined deployment of capital, underscored by the recent acquisition of Belanger.

And that concludes the presentation, and we will open up to questions. Andrey?

Andrey Galiuk -- Vice President, Corporate Development and Investor Relations

Maria, we can open up to Q&A.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Steve Tusa of J.P. Morgan.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Hey, good morning.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Hi Steve.

Richard J. Tobin -- President and Chief Executive Officer

Good morning, Steve.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Just curious. So CapEx going up quite a bit next year, yet you're still guiding to kind of 8% to 12% of sales and free cash flow. Can you -- I know there is some noise around restructuring this year and maybe obviously some working capital headwinds. So can you maybe just help us kind of bridge the gap there and the other moving parts outside of CapEx?

Richard J. Tobin -- President and Chief Executive Officer

Sure. I think what Brad covered, we gave a -- I'd call it a normalized cash flow for the cash impact to the restructuring operations. So -- I mean we are just under 10% for the year. And with the strong revenue growth in Q4, we had some amount of cash flow that was hung up in receivables. So if you take a look at next year, the revenue growth is not at that same kind of momentum, so we would unwind that Q4 revenue through cash flow. And quite frankly, it's not as if we're performing at 100% in terms of cash conversion, so, making up that $30 million to $40 million over the year, we've got -- we've got the ability to do it. So I don't think it's -- I know that we're forecasting to spend more for CapEx. We believe in the projects we're doing it, but we don't think that that spend on CapEx is negatively going to impact the cash flow target for 2019.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Okay. And then just quickly on product ID. I'm not sure if you mentioned this in the prepared comments, but how are orders there in the fourth quarter? And then, there was kind of a smaller cap here that talked about some weakness in digital printing. I know you guys -- digital printing is not a -- it's maybe not comparable across the board. Are you guys seeing anything there with regards to trends globally and demand for what's been a pretty strong growth business?

Richard J. Tobin -- President and Chief Executive Officer

Yes. I mean, look, digital printing in terms of its margin performance year-over-year, did a fantastic job. But as you know these are high dollar printers, so the revenue tends to be a little bit lumpy. It is reflected in our book-to-bill in Printing & ID, it's not so much the Markem-Imaje piece, it's more just the lumpiness of the orders, but our expectation for digital print for 2019 is to increase revenue.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Okay.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

I would just add that Markem-Imaje has been steady all year long at above 1 book-to-bill. So that business remains solid for us.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

So I guess digital printing was the reason for kind of the weaker orders in the quarter? I think you said they were down?

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Yes.

Richard J. Tobin -- President and Chief Executive Officer

Yes. It's just the lumpiness of when (multiple speakers)

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Yeah, OK. It's all right. That makes sense. Thanks a lot guys. I appreciate the detail.

Richard J. Tobin -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Nigel Coe of Wolfe Research.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Good morning, Nigel. Are you there?

Operator

And it looks like Nigel withdrew his question. We'll move on to Andrew Obin of Bank of America Merrill Lynch.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Yes, good morning.

Richard J. Tobin -- President and Chief Executive Officer

Hi Andrew, good morning.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Just a question. Just to clear it up, sort of unannounced footprint consolidation, I assume it's food refrigeration and automation actions related to it. Can you expound on that? Can you just explain to us what that is?

Richard J. Tobin -- President and Chief Executive Officer

Not necessarily. I mean we are investing in retail refrigeration and automation, if that is going to progressively come online. So expand the capacity of the footprint enrichment. So it's not alluding to that necessarily. I mean that's a project that's going to take more or less the whole year to get online.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Okay. And that's all we had announced in terms of food refrigeration right now?

Richard J. Tobin -- President and Chief Executive Officer

The only thing we've announced in terms of that segment is the consolidation in United Brands, bringing the footprint from three to one, which is under way.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Got you, got you. Okay. That makes sense. And then the second question, just going back to cash flow. This range of 8% to 12%, can you bracket what drives the range? And I remember at C&H cash was a big focus when you came in. How are you changing the systems inside Dover to achieve better cash flow in the long run?

Richard J. Tobin -- President and Chief Executive Officer

I mean Dover's historical cash generation has not been poor by any stretch of imagination. I think that what we did was widen the range for cash generation, just to open up business and cycling of the business, which is more revenue related and capital consumption from CapEx. So at the end of the day if you take a look at what was generated for the full year of '18, we came slightly below 10%, if we normalized for the cash cost of the restructuring actions. Despite the fact that having CapEx up a little bit, we're getting a little bit penalized in Q4 because of the fact that the growth rate was so robust, so you've got some amount of cash that's hung up in receivables. So, on one hand we don't want to manage that cash number where to the extent they were not taking orders and making deliveries, because we prefer to have the operating profit, quite frankly.

So what we -- the way that we look at it here and we should look at it here is -- it's a self-liquidating balance sheet, right? We accommodate the negative impact of higher revenues. We're taking the earnings and we've just got to get really good at cycling our receivables and working on our payment, so just kind of the working capital point of it. But on the other hand, it's not as if we can get cornered into 10% of revenue, where we say, wait a minute, stop shipping, if you will.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Now, thanks. That makes sense. The perception I think was that the Apergy business was a big cash generation. And ex-Apergy, I think it was nice to see that the cash was still very good. Thanks.

Richard J. Tobin -- President and Chief Executive Officer

Yes.

Operator

Our next question comes from the line of Jeffrey Sprague of Vertical Research.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Thank you. Good morning everyone. Just back to refrigeration. I mean I guess unannounced restructuring is not announced. But if the automation and refurbs (ph) and increasing your capacity enrichment, I mean it certainly follows that you need to make some other moves at some point in that business I would think, or you, in fact see growth clearly picking up where you're not in a situation where you have overcapacity.

Richard J. Tobin -- President and Chief Executive Officer

The demand levels that we forecasted for 2019, we will be over-capacitized.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Yes. And just thinking about these orders, Rich, in refrigeration you're seeing now, is the pricing on orders such that you feel better, decent on the margin trajectory in refrigeration over the course of 2019?

Richard J. Tobin -- President and Chief Executive Officer

I'd like the pricing to be better, is the honest answer, but we've modeled in kind of exit pricing or current market conditions. One would hope if demand was to accelerate in excess than what we've modeled in here that there'd be some room for pricing. But right now I think we've got a pretty cautious view about demand and pricing for retail refrigeration in '19.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Great. And then just one other one. Would have never occurred to me that Unified Brands would have been that big of a restructuring opportunity, but is this something that you can execute it fairly quickly here in the first half or is this drawn out over some period of time?

Richard J. Tobin -- President and Chief Executive Officer

Don't look at the supplemental chart and say that's all Unified Brands. A piece of that is Unified Brands, but there's a variety of other smaller projects in there. Unified Brands tends to be the one we're using as example, because the footprint consolidation is quite large. And we started that in Q4 and it's pretty much going to take us through the first half of 2019 to complete.

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Perfect. Thank you.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Andy Kaplowitz of Citibank.

Andrew Kaplowitz -- Citigroup Global Markets, Inc. -- Analyst

Good morning guys.

Richard J. Tobin -- President and Chief Executive Officer

Hi Andrew.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Good morning.

Andrew Kaplowitz -- Citigroup Global Markets, Inc. -- Analyst

Richard, on Analyst Day you mentioned that DFS was finalizing a path to 15% to 17% margin. You mentioned in your third quarter call that you're happy with DFS' exit margin rate. It does look like margin overall in Fluids is quite good. So how much has DFS already improved in margins? And has the improvement been faster than you expected?

Richard J. Tobin -- President and Chief Executive Officer

The DFS margin in Q4 was slightly below the exit rate of Q3, but that was entirely driven by geographic mix. So it has been sequentially getting better through 2018. And as I mentioned in my comments, one of the -- if you look at -- if you do the math on the incremental margin on the EPS bridge, you're going to see at the lower end of the revenue side that it's pretty robust and a lot of that is the non-reoccurrence of some of the issues that we dealt with in 2018. I think that the margin targets that we showed in 2000 -- in September are real and we're going to be tracking progressively to realizing those margins through 2019 under current demand scenarios.

Andrew Kaplowitz -- Citigroup Global Markets, Inc. -- Analyst

Okay, that's helpful Rich. And then maybe you can break down a little more of the 17% growth in Fluids. I mean you talked about strength in Pumps and Process Solutions. The D&B (ph) impact in the quarter, did it pick up in the quarter and with the bookings strength in the segment, is it fair to say that there is relatively high confidence in the 3% to 4% growth forecast for 2019, given the backlog that you have?

Richard J. Tobin -- President and Chief Executive Officer

We like our exit growth rate and we like our book-to-bill and that is reflected in what we're putting out there for the guidance for the segment. As you know what we have, what we can see is into Q2 at the present time. So look, we feel good where we are despite a lot of negativity in terms of sentiment about the demand environment for everything going into 2019. So we feel good about the forecast that we have out there.

In terms of the growth rate, the fastest-growing portion was DFS or Fluids, the Fluids business of the retail fueling. But having said that, the balance of the portfolio really grew well. We've commented before, I think in Q2 and maybe to a lesser extent of Q3 on the Maag business, which is very much project related, that was a large contributor to the growth in the incremental margin also for the quarter.

Andrew Kaplowitz -- Citigroup Global Markets, Inc. -- Analyst

Thanks Rich.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Julian Mitchell of Barclays.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Thanks. Good morning. Maybe just a question around capital deployment. I think you've noted that the assumptions for 2019 on EPS do not embed much in the way of extra buyback, or foresee any unannounced M&A. So maybe just update us on how you see your capacity for capital deployment at least this year, even if you're not giving us guidance on the buyback, and how you see the preference of acquisitions versus buybacks to use that capital?

Richard J. Tobin -- President and Chief Executive Officer

Sure. Well in terms of the hierarchy, it's the same as we have presented in September that we've got a bias for organic investment, because that's where the returns are highest. And really the biggest change year-over-year is what we're doing in terms of organic investment, which is reflected in the CapEx slide. We just completed an acquisition or an inorganic investment in the car wash equipment business.

We gave the criteria of what we were looking for in September in terms of margin expansion, execution risk and return on invested capital hurdles. That particular one meets all three, so we feel quite good there. We've got a reasonably good pipeline that we're taking a look at right now. And the size of that pipeline, in terms of the scale of those opportunities are more or less around where that Belanger acquisition was. So that's the kind of color I can give you on. Whether we'll execute or not, who is to say, but we're not going to sit on cash as we build it through the year.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Thank you very much. And then my second question would be going back to the Fluids business again. Talk about any updated thoughts around the U.S. retail fueling buildout, not just the revenue assumptions, maybe for this year and medium term for that EMV aspect, but also I guess how you're handling that in terms of working capital build, which was something you'd mentioned once or twice on the prior earnings call?

Richard J. Tobin -- President and Chief Executive Officer

I'll deal with the working capital one and I will let Brad take the EMV, because of course we always have an EMV slide somewhere around here. Yes, on the working capital side of DFS or retail fueling, I think we have the conversion in our orders, which was very robust in Q4. So we go into 2019 with not a lot of inventory. What we do have is the receivable balance from that strong growth.

So in total working capital we had highlighted the fact earlier in the year that we were going to build safety stock to accommodate what we thought was going to be a robust demand environment. We got it at the end of the day, but from a working capital point of view if there's any negativity of growing, it's the fact that we hung it up on receivables. But I will leave it to Brad to comment on what -- how EMV participated in Q4 and what our view on EMV is for 2019.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Sure. Sure Rich. When I speak about EMV, just a reminder, I'm not talking about dispensers that are EMV ready. It's really the component pieces and we stay on track and track it very carefully. I would say second half of '18, including the fourth quarter, was above '17 (ph). So we came out of that air pocket in the first half. Sequentially we go into '19 and we see growth in solid -- we see growth sequentially and solid year-over-year growth in EMV. I would say, DFS, our business leadership is really very confident in terms of how we see the line of sight to EMV for 2019, based on discussions with our customers in specific projects. So EMV is shaping up to be year-over-year up into '19, sequentially improving throughout the year.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Great. Thank you.

Richard J. Tobin -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Nigel Coe of Wolfe Research.

Nigel Coe -- Wolfe Research LLC -- Analyst

Thanks. Good morning. Can you hear me?

Richard J. Tobin -- President and Chief Executive Officer

Yes, we can Nigel.

Nigel Coe -- Wolfe Research LLC -- Analyst

Okay, that's good. So I just want to touch on the bookings in terms of bookings growth. Obviously, you went through a lot of detail in the slides. But I'm just curious, because number one it's broad-based and secondly, 10% (ph) is probably going to be one of the best we see this quarter. So is there anything different about the investments you've made or the structure that you put in place that could explain the inflection orders, or are they just one of those things?

Richard J. Tobin -- President and Chief Executive Officer

I think that it's one of those things. I think it's a reflection of the fact of the exit rate on the growth. I think it's a reflection on in certain businesses that lead times have gotten extended because of supply chain. I mean there is an overall view I think in the market, because of strains of tariffs and a variety of things that people are getting worried at the performance of supply chains to a certain extent. So they're getting in front a little bit of getting in line for what they believe that they need for 2019.

So overall, I don't think there's anything in there except for the fact that we've been on a pretty good -- our businesses have been on a pretty good -- with the exception of refrigeration, been in a good place in terms of top line growth. And there is an overhang of worry about our supply chains getting extended and a variety of other things and that's allowed us to go out and ping our customers and say look, if you really want first half deliveries you've got to get in line.

Nigel Coe -- Wolfe Research LLC -- Analyst

Okay, understood. That makes sense. Just want to go back to Steve's question on free cash flow. The 8% to 12% is obviously a very wide range, about $300 million (ph) of bandwidth on free cash flow. I understand the CapEx headwind, but is there anything else that's highly variable within your free cash build, cash restructuring et cetera? Explain that why it's that wide range?

Richard J. Tobin -- President and Chief Executive Officer

It would be growth at the end of the day. Our expectation is we would actually underperform when the top line is moving up aggressively and we would overperform as the businesses liquidate the balance sheet, we are at the midpoint here.

Nigel Coe -- Wolfe Research LLC -- Analyst

Great. Thanks guys.

Richard J. Tobin -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Mig Dobre of Baird.

Mircea Dobre -- Robert W. Baird & Co., Inc. -- Analyst

Yes. Good morning everyone. Just going back to refrigeration here. I understand that your -- you guys remain cautious into 2019 and that business struggled a lot, but orders were finally decent, maybe for the first time in almost two years. So I'm wondering if there is something specific in the quarter, if any customer, anything that happened that would be discrete? Or is this market is finally starting to turn around a little bit?

Richard J. Tobin -- President and Chief Executive Officer

I think it's not any particular customer. It's broad-based of our traditional customers. And I think overall it's just a reflection of capital investment in retail food has been low for quite a long period of time. And it's coming off easier and easier comps as we've gone through the cycle. So we're grateful for it. I think it's good for morale in the business, but we remain cautious and we'd like just to continually update it hopefully quarter-by-quarter if these kinds of trends hold.

Mircea Dobre -- Robert W. Baird & Co., Inc. -- Analyst

All right. I see. In terms of what you're hearing from your salespeople, is it any particular vertical? I mean is it Dollar Stores or the big retailers, and anything else that you can say about demand?

Richard J. Tobin -- President and Chief Executive Officer

I don't want to get into individual customers, but it's -- it's big box and all other.

Mircea Dobre -- Robert W. Baird & Co., Inc. -- Analyst

Lastly, on Belvac, anything you can talk about in terms of demand? And I presume that the comps are getting a lot easier going forward. How do you think about that business in '19?

Richard J. Tobin -- President and Chief Executive Officer

If we go back and look at Belvac's performance over time, it's been lumpy. I think it's just become more material to the segment, because of the fact that refrigeration has shrunk so much, so there's nothing particularly wrong with Belvac. It's a CapEx-driven business from the beverage side and it was just a bad year. A lot of projects got deferred and a variety of other things. So I think we've also got a cautious view. We're engaging with all of our customers, but we'd like to see the backlog build sequentially and then we'll comment it over the year.

Mircea Dobre -- Robert W. Baird & Co., Inc. -- Analyst

Thank you.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Scott Davis from Melius Research.

Scott Davis -- Melius Research -- Analyst

Hey, good morning guys.

Richard J. Tobin -- President and Chief Executive Officer

Hi Scott.

Scott Davis -- Melius Research -- Analyst

I don't know much about this car wash equipment business and maybe this would be a good opportunity late in the Q just for you guys to help educate us a little bit. I mean, how many other opportunities are out there -- are there out there to really roll it up? Is it already consolidated? Is it -- just help us understand really where you're going with it.

Richard J. Tobin -- President and Chief Executive Officer

Yes, I don't know if I want to opine on kind of what is our longer-term strategy. Maybe just back up and say that OP -- within the OPW, there had been a car wash business PDQ. It's been accretive to both the segment and the Company. We like the trends in car wash. This particular acquisition is of a size that we think that it's from an execution point of view. It's very doable for us and it widens our portfolio and our strength with our distributors, meaning now that we've got a ton of product to go along with our traditional position.

So we like the secular trends in car wash in terms of the growth profile and we like our historical performance in terms of margin. And like I said it checked the box on return hurdles and execution risk. It's a fragmented market. But on the other hand, it's now that we've done this acquisition, we are one of the largest players, at least in North America. So we like the market structure, also, but I think -- and to the extent that there is additional opportunities, we'll continue to take a look at them, but it really did check a lot of boxes for companies that we're looking for.

Scott Davis -- Melius Research -- Analyst

Fair enough. And then I'm sure you guys are sick and tired of answering questions on refrigeration, but I'm going to pile on a little bit. What's been the customer response to cutting SKUs, cutting capacity? I mean generally in understanding the customer level that you just don't have a choice and you need to make these moves, or has there been some sort of pushback, particularly in the SKU rationalization?

Richard J. Tobin -- President and Chief Executive Officer

Yes, no one likes it at the end of the day. I think that our track record in the second half of the year in terms of trying to run the business while preparing it for a transformational change. I'm sure that we have made some of our customers unhappy. I think that we're working diligently to kind of lay out the path where this gets our costs in control and we believe very much that it's going to improve our quality over time. But having said that, I think that the business has been around a long time. I think there is an amount of goodwill, but clearly we're going to need to execute in this project as we go through. It's probably the biggest project that we have in -- right now for 2019.

Scott Davis -- Melius Research -- Analyst

Okay. Fair enough, Rich. Good luck to you.

Richard J. Tobin -- President and Chief Executive Officer

Thanks Scott.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of John Inch of Gordon Haskett.

John Inch -- Gordon Haskett -- Analyst

Good morning everybody.

Richard J. Tobin -- President and Chief Executive Officer

Good morning.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Hi.

John Inch -- Gordon Haskett -- Analyst

Good morning guys. So just -- how did the quarter progress? And I ask the question, because some companies have called out a softer December, particularly end of December. Some have called out sort of a softer October that picked up back up in November. And I'm just curious, because obviously you don't have necessarily a broad line of economic businesses that are kind of specific to Dover. But the trends that you saw against the backdrop of global economy softening, softening in Asia. Does that give you any kind of pause or what to watch for as these quarters come through in 2019?

Richard J. Tobin -- President and Chief Executive Officer

I think that our biggest worry in the quarter was conversion of what we had in the backlog. I think we got a little bit -- in a perfect world, we would have converted earlier in the quarter and not had to run like crazy during December from both a production point of view and from a cash point of view. But as I said in my opening comments, it got a little dicey, but we were able to get it out the door and collect it. So I think from an execution point of view I think that the organization should be proud of themselves.

We dispatched the segment management to China, because we read the same things that everybody else did. So segment management spent a week in China recently to go and see how it's impacting our business and the like. Our management in China is feeling pretty confident. Now, we've got really two revenue streams in China. It's the consumables portion of Markem-Imaje, which is relatively stable business. And then the regulatory piece of Fluids, which is geared toward OPW, which generally has a decent line of sight in terms of backlog. So we're cognizant of the risk out there. But right now our projections for China are to grow in 2019.

John Inch -- Gordon Haskett -- Analyst

Rich, in the last recession, refrigeration got clipped. And what's different about this go round (ph) depending on how the economy plays out, but at some point we'll get another recession. Refrigeration is obviously not stopping or starting off a high base. And I'm just curious, you as a company have talked about the fact that the next downturn you'd perform kind of much better, obviously given Apergy is no longer there. But what about refrigeration? I mean are we at a base level that if there was a broader economic downturn you think that it would perform better? Or is it just the lower base and it would still go down the way it's done historically? I mean (multiple speakers)

Richard J. Tobin -- President and Chief Executive Officer

John, I can't add anything to what you said, right? I haven't been around long enough to really think about it specifically as it relates to refrigeration, but you put your finger on it. At the end of the day if it was to happen this year, God forbid, we're at such a low base in refrigeration, I'm not -- I mean we're below replacement at this point.

John Inch -- Gordon Haskett -- Analyst

Okay. So it's fair to say you feel obviously I think very good about the base, at least in the context of possible risks to the economy, without putting words in your mouth?

Richard J. Tobin -- President and Chief Executive Officer

Well no. I think I'll feel really good if we execute on our plans in 2019. I mean 2018 was a tough year, I think for the management of the business and for us. I think that we've got a good plan. I want to see us execute it and I'm going to feel a lot better about it.

John Inch -- Gordon Haskett -- Analyst

Just lastly Rich and Brad, the $18 million of benefit you've called out from near-term footprint consolidation, presumably this is part of a phase two if you will in Dover's evolution. Where would you put this in that context? You talked about, right, the 200 manufacturing warehouses. I mean is this a -- is there any way to size this in any sort of a way or (multiple speakers)

Richard J. Tobin -- President and Chief Executive Officer

I think the way to answer it John -- yes, I think the way to answer it is twofold, that when we had the meeting in September, we said that the priority was to go after SG&A first, because it was a one-for-one benefit and it was in your control so you could execute it. We said that we moved onto footprint, footprint is a lot more risky and the timing of acting upon the footprint is a lot longer. So that's why you see us taking a relatively small charge in the end of 2018 and the real benefit -- the total benefit is in 2019. So the returns -- if you calculate the returns, they're still excellent. But we've got to run our business here, right. And we don't want it to impact the top line, so we're pretty being -- pretty deliberate about how we execute these things.

John Inch -- Gordon Haskett -- Analyst

But in the big picture Rich, even if it takes several years, could footprint/phase two be as big as the SG&A?

Richard J. Tobin -- President and Chief Executive Officer

I don't want to size it, but that was a relatively small start that we've taken and we're forecasting $18 million. So we look at this as a multiyear program.

John Inch -- Gordon Haskett -- Analyst

Got it. Thanks very much.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Deane Dray of RBC Capital Markets.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning everyone.

Richard J. Tobin -- President and Chief Executive Officer

Good morning.

Deane Dray -- RBC Capital Markets -- Analyst

Hey, want to circle back on Fluids. And Rich, you talked about one of the benefits, because first of all we don't see organic growth rate in that segment as strong as 17%. So can you take us through, with any more color, the impacts of mix and pricing? And then you also said there was a benefit of some of the cost out there as well.

Richard J. Tobin -- President and Chief Executive Officer

I don't want to start -- I think we can do those with follow-ups. I think at the end of the day, the two biggest driving issues within the segment were retail fueling. We've been talking, I guess, in the second half of the year that because of footprint consolidation, we got a little bit behind in terms of our backlog and we had a lot of catch-up to do. Plus the fact Brad took you over -- took you through that EMV is starting to come through, which is a positive for 2019. And the fact that I think we talked about earlier in the year, some of the margin was related to mix and that's project-related work that's driven by the Maag business. So what we got in Q4 was very good conversion, maybe not so much in EBIT as much as we like in EBIT, but on the top line of converting of the backlog in the retail Fluids business and a lot of shipments out of Maag, which are good for margins.

Deane Dray -- RBC Capital Markets -- Analyst

Got it. And then you mentioned tariffs as a factor in Fluids. And then can you also address how you did in oil and gas broadly, away from retail fueling?

Richard J. Tobin -- President and Chief Executive Officer

The tariff-related, what I mentioned about tariffs is the fact that we believe that it is contributing a little bit to the building of the backlog, right? Everybody is worried about the supply chain, which -- and a piece of that is tariffs. So customers that have plans -- CapEx-driven plans, or demand plans for 2019, we feel that's what's contributing somewhat to the good order book that we have. In terms of our view on tariffs, we will be able to cover the tariff impact with pricing and productivity and that's our expectation for 2019.

Deane Dray -- RBC Capital Markets -- Analyst

And oil and gas?

Richard J. Tobin -- President and Chief Executive Officer

Our oil and gas exposure now is relatively low with the spin-off of Apergy.

Deane Dray -- RBC Capital Markets -- Analyst

But you still have residual oil that shows up in midstream. Any color there?

Richard J. Tobin -- President and Chief Executive Officer

Yes. It's not an overly material number. And quite frankly, because a lot of our pumps business is sold through distribution, I mean I guess we could do the work at the end of the day, but it's hard to parse it.

Deane Dray -- RBC Capital Markets -- Analyst

Got it. Thank you.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Joe Ritchie of Goldman Sachs.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Thanks. Good morning.

Richard J. Tobin -- President and Chief Executive Officer

Hi Joe.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

So I guess my first question is just on the CapEx investment, Rich, and how are you thinking about the expected payback from those investments?

Richard J. Tobin -- President and Chief Executive Officer

Look, we wouldn't be doing them unless we had positive NPVs out of them at the end of the day. I called out the two bigger ones, because they've got a little bit of different profiles, right. So it was to kind of message in terms of what we will consider when we do big CapEx projects. One was on the Colder business, which is our connector business. I believe it was the fastest growing or maybe in second place fastest-growth business that we had in 2018 and the margin is positive to both the segment and the Group. So if we're going to invest in capacity expansion that's a pretty good candidate. So we like the dynamics of that business and we were getting chock-a-block in terms of our ability to grow, based on our footprint.

The other one is driven by what we're doing in terms of retail refrigeration and that -- let's put that in kind of the productivity bucket rather than kind of the expansion bucket, right? And both have different dynamics in terms of how we model the return, but both of them are very NPV positive as long as we execute correctly.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Got it. That's helpful. And then I guess, just my one follow-on. When you think about the $72 million in incremental SG&A savings to come through this year, how are you thinking about that coming through? Should it all be -- should it be pretty linear, just given that the actions were taken in 2018?

Richard J. Tobin -- President and Chief Executive Officer

Yes.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Yes that's the way to think about it. Linear.

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

All right. Cool. Thanks guys.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

You're welcome.

Operator

And ladies and gentlemen, we do have time for one more question. Our final question will come from the line of Josh Pokrzywinski of Morgan Stanley.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Hi. Good morning guys.

Brad M. Cerepak -- Senior Vice President & Chief Financial Officer

Good morning.

Richard J. Tobin -- President and Chief Executive Officer

Hey Josh.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Rich, just first question on some of the footprint consolidation and some of the longer-term optionality there. I know it's probably premature to size it, but thinking about the percentage of the footprint that's been evaluated, so just looked at so far, what is that $18 million of savings really comprised? Is it -- you looked at the third of the business, you looked at 25%, just trying to get a sense for at least what's gotten kind of the first blush so far?

Richard J. Tobin -- President and Chief Executive Officer

Well, I think that we've taken a look at the entire footprint, but not -- so our cursory view of identified opportunities by operating company. Then we've kind of put them in order, in terms of the -- our ability to execute, both as a Group and by an individual operating company. And so we force rank them based on that. So we've got a relatively long pipeline, but execution risk in some is a lot higher than others. The need to do it from a margin enhancement point of view is higher in some than others. I think that we signaled in September the two segments that are challenged from a margin point of view. So our bias would be to act there first, but then it comes back to the organization's ability to execute and we're bringing in resources in 2019 to kind of accelerate our way through 2019. But the fact of the matter is the Group's track record in doing facility consolidation is not great, so we want to be relatively deliberate and get some momentum of successful projects and then begin to roll.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That makes sense. And then I think a couple of questions have kind of nipped at the edges of this. But Fluids guidance of 3% to 4% organic, coming off a pretty good quarter, I think, and easy comps in the first quarter, good bookings, decent visibility with EMV. I think, you added all up, I things should be probably at a high end or maybe even above the high end. I guess the one comment that you made earlier and maybe in the prepared remarks was about clearing some of the backlog there. Is that really what pulls that within the range is more that you had some of this business with pent-up, you've worked through it and maybe now the comp is not as easy as it appears as of the fourth quarter? Just trying to calibrate how do you stay within the range there?

Richard J. Tobin -- President and Chief Executive Officer

Yes. Well, we've been having quite the dialogue around here between our very good performance in conversion and how that affected the top line versus what our guidance was going to be, versus the markets saying that there is a slowdown in the horizon and everything else. We feel great about what happened in Q4. I don't think that we could keep that level up through the year, but there's no reason for us not to hit the top end of the range. But these are businesses that don't have a lot -- I mean, they're so small in their nature, there's not a lot of secular stories behind them. So we took kind of a middle-of-the-road view and to the extent that the demand is there, then we'll push the top end as hard as we can sequentially through the quarters, but I think it would have been a little bit difficult for us to take Q4 and say, well, based on that and our backlog this thing just rolls through '19. We just don't have enough visibility right now.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

No, I think that's fair. I guess the question is relative to the rest of the business it seems like you've baked in more of a soft landing from a macro perspective there than elsewhere. Is that kind of a fair starting point?

Richard J. Tobin -- President and Chief Executive Officer

That's fair.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Got it. Okay. I appreciate the color. Thanks Rich.

Operator

And thank you. That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Galiuk for closing remarks.

Andrey Galiuk -- Vice President, Corporate Development and Investor Relations

This concludes our conference call. Thank you for your interest in Dover and we look forward to speaking to you next quarter.

Operator

Thank you. That concludes today's fourth quarter 2018 Dover earnings conference call. You may now disconnect your lines at this time and have a wonderful day.

Duration: 57 minutes

Call participants:

Andrey Galiuk -- Vice President, Corporate Development and Investor Relations

Richard J. Tobin -- President and Chief Executive Officer

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Jeffrey Todd Sprague -- Vertical Research Partners LLC -- Analyst

Andrew Kaplowitz -- Citigroup Global Markets, Inc. -- Analyst

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Nigel Coe -- Wolfe Research LLC -- Analyst

Mircea Dobre -- Robert W. Baird & Co., Inc. -- Analyst

Scott Davis -- Melius Research -- Analyst

John Inch -- Gordon Haskett -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

Joe Ritchie -- Goldman Sachs & Co. LLC -- Analyst

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

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