First quarter sales were $846.3 million
compared with $847.3 million in fiscal 2023
EPS of $0.75, up 6.8% versus 2023 GAAP EPS
of $0.70, flat versus 2023 adjusted EPS of $0.75
Fiscal 2024 sales and EPS projected at
record levels, consistent with previous guidance
Donaldson Company, Inc. (NYSE: DCI) (Donaldson or the Company),
a global leader in technology-led filtration products and
solutions, today reported first quarter fiscal 2024 generally
accepted accounting principles (GAAP) net earnings of $92.1
million, compared with $87.2 million in fiscal 2023. First quarter
2023 earnings include restructuring and other charges of $7.6
million largely related to the Company’s organizational redesign.
First quarter 2024 GAAP earnings per share (EPS)1 were $0.75
compared with 2023 GAAP and adjusted earnings per share of $0.70
and $0.75, respectively. The tables attached to this press release
include a reconciliation of GAAP to non-GAAP measures.
“I am pleased with our first quarter earnings results which
reflect gross margin strength driven by robust operational
performance,” said Tod Carpenter, chairman, president and chief
executive officer. “We have begun fiscal 2024 on solid footing,
delivering our technology-led filtration products and services to
our customers globally. Industrial Solutions performance in the
quarter was a particular area of strength, with our focused growth
initiatives driving outstanding results.”
“We continue to expect record sales and earnings in fiscal 2024
while investing for long-term profitable growth across our
diversified portfolio. Ongoing investments in our Life Sciences
business, R&D and the scaling of our acquisitions enable us to
execute our balanced growth strategy and pave the way to achieving
our fiscal 2026 Investor Day targets.”
______________________ 1 All EPS figures refer to diluted
EPS.
First Quarter Operating
Results
Sales of $846.3 million were approximately flat compared with
2023, driven by volume declines offset by pricing benefits.
Three Months Ended
October 31, 2023
Reported % Change
Constant Currency %
Change
Mobile Solutions segment
Off-Road
(8.6
)%
(10.9
)%
On-Road
4.8
4.7
Aftermarket
(1.9
)
(3.0
)
Total Mobile Solutions segment
(2.7
)
(3.9
)
Industrial Solutions segment
Industrial Filtration Solutions
7.4
5.9
Aerospace and Defense
5.9
4.0
Total Industrial Solutions segment
7.2
5.6
Life Sciences segment
Total Life Sciences segment
(4.1
)
(6.8
)
Total Company
(0.1
)%
(1.6
)%
Mobile Solutions segment (Mobile) sales decreased 2.7% from
volume declines partially offset by pricing benefits. Off-Road
sales decreased 8.6% due to weakening global end-market conditions,
including in China. Aftermarket sales declined 1.9% as a result of
continued OEM destocking. On-Road sales increased 4.8% driven by
elevated levels of on-highway equipment production, particularly in
China.
Industrial Solutions segment (Industrial) sales increased 7.2%
as strong demand in most geographies drove volume growth.
Industrial Filtration Solutions (IFS) sales grew 7.4% from ongoing
strength in Power Generation and dust collection sales. Aerospace
and Defense sales increased 5.9% driven by robust Defense
sales.
Life Sciences segment sales declined 4.1% year over year
resulting primarily from continued Disk Drive market-related sales
weakness.
Gross margin was 35.6%, up 170 basis points from 33.9% in 2023
driven by pricing benefits, deflation in freight and select
material costs, and mix.
Operating expenses as a percentage of sales were 20.8%, 100
basis points above 19.8% in the prior year, due to increased hiring
and acquisition-related expenses. First quarter 2023 adjusted
operating expenses as a percentage of sales, which exclude
restructuring and other charges, were 18.9%.
Operating income as a percentage of sales (operating margin) of
14.7%, increased 60 basis points year over year from 14.1% in 2023
as gross margin improvement more than offset operating expense
deleveraging. Adjusted operating margin was 15.0% in the prior
year.
Interest expense was $5.5 million versus $4.5 million in the
prior year due to higher interest rates. Other income, net was $3.8
million compared with $1.8 million in 2023 as a result foreign
exchange losses in the prior year period. The Company's effective
tax rate was 25.1% versus 25.2% a year ago.
Donaldson paid $30.2 million in dividends and repurchased 0.7%
of its outstanding shares for $53.7 million.
Fiscal 2024 Outlook
Consistent with the prior outlook, full-year EPS is forecast to
be between $3.14 and $3.30, compared with fiscal 2023 GAAP and
adjusted EPS of $2.90 and $3.04, respectively. Sales are expected
to increase between 3% and 7% year over year, with a pricing
benefit of approximately 2% and a currency translation tailwind of
roughly 1%.
Mobile sales are forecast to increase between 1% and 5% versus
2023. Softening end-market conditions, including in China, are
expected to drive a mid-single digit decline in Off-Road sales and
flat On-Road sales versus prior year. Aftermarket sales are
projected to increase mid-single digits as a result of higher
vehicle utilization rates and market share gains.
Industrial sales are expected to increase between 3% and 7%
compared with prior year. Strength in Power Generation and dust
collection sales is forecast to drive mid-single digit growth in
IFS. Aerospace and Defense sales are projected to increase
mid-single digits due to robust end-market conditions and market
share gains.
Life Sciences sales are forecast to grow approximately 20%
compared with 2023 benefitting from increases across all businesses
including Food & Beverage, Bioprocessing Equipment and
Consumables, and Disk Drive.
Operating margin is expected to be between 14.7% and 15.3%
versus 14.0%, or 14.6% on an adjusted basis, in 2023 with
year-over-year gross margin improvement partially offset by
investments in the Life Sciences segment.
Interest expense is forecast to be approximately $23 million and
other income is expected to be between $7 million and $11 million.
Donaldson projects a fiscal 2024 effective income tax rate of
between 24% and 26%.
Capital expenditures are forecast to be between $95 million and
$115 million and free cash flow conversion is expected to be
between 95% and 105%. For the full year, Donaldson anticipates
repurchasing approximately 2% of its shares outstanding.
Miscellaneous
The Company will webcast its first quarter fiscal 2024 earnings
conference call today at 9:00 a.m. CT. To listen to the webcast,
visit the “Events & Presentations” section of Donaldson’s
Investor Relations website (IR.Donaldson.com), and click on the
“listen to webcast” option. The webcast replay will be available at
approximately 12:00 p.m. CT today. Also available on the website is
the Company’s supplemental quarterly earnings presentation.
Statements in this release regarding future events and
expectations, such as forecasts, plans, trends and projections
relating to the Company’s business and financial performance, are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are identified by
words or phrases such as “will likely result,” “are expected to,”
“will continue,” “will allow,” “estimate,” “project,” “believe,”
“expect,” “anticipate,” “forecast,” “plan” and similar expressions.
These forward-looking statements speak only as of the date such
statements are made and are subject to risks and uncertainties that
could affect the Company’s performance and could cause the
Company’s actual results for future periods to differ materially
from any opinions or statements expressed. These factors include,
but are not limited to, challenges in global operations; impacts of
global economic, industrial and political conditions on product
demand; impacts from unexpected events, including natural
disasters; effects of unavailable raw materials or material cost
inflation; inability to attract and retain qualified personnel;
inability to meet customer demand; inability to maintain
competitive advantages; threats from disruptive technologies;
effects of highly competitive markets with pricing pressure;
exposure to customer concentration in certain cyclical industries;
inability to manage productivity improvements; inability to achieve
commitments to ESG; results of execution of any acquisition,
divestiture and other strategic transactions; vulnerabilities
associated with information technology systems and security;
inability to protect and enforce intellectual property rights;
costs associated with governmental laws and regulations; impacts of
foreign currency fluctuations; and effects of changes in capital
and credit markets. These and other factors are described in Part
I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form
10-K for the fiscal year ended July 31, 2023. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, unless required by law. The results
presented herein are preliminary, unaudited and subject to revision
until the Company files its results with the United States
Securities and Exchange Commission on Form 10-Q.
About Donaldson Company,
Inc.
Founded in 1915, Donaldson (NYSE: DCI) is a global leader in
technology-led filtration products and solutions, serving a broad
range of industries and advanced markets. Diverse, skilled
employees at over 140 locations on six continents partner with
customers—from small business owners to R&D organizations and
the world’s biggest OEM brands. Donaldson solves complex filtration
challenges through three primary segments: Mobile Solutions,
Industrial Solutions and Life Sciences. Additional information is
available at www.Donaldson.com.
DONALDSON COMPANY, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended
October 31,
2023
2022
Change
Net sales
$
846.3
$
847.3
(0.1
)%
Cost of sales
545.4
560.1
(2.6
)
Gross profit
300.9
287.2
4.8
Selling, general and administrative
155.0
149.2
3.8
Research and development
21.3
18.7
14.0
Operating expenses
176.3
167.9
5.0
Operating income
124.6
119.3
4.5
Interest expense
5.5
4.5
20.7
Other income, net
(3.8
)
(1.8
)
NM(1)
Earnings before income taxes
122.9
116.6
5.4
Income taxes
30.8
29.4
4.7
Net earnings
$
92.1
$
87.2
5.7
%
Weighted average shares – basic
120.9
122.6
(1.4
)%
Weighted average shares – diluted
122.6
123.9
(1.1
)%
Net EPS – basic
$
0.76
$
0.71
7.1
%
Net EPS – diluted
$
0.75
$
0.70
6.8
%
Dividends paid per share
$
0.25
$
0.23
8.7
%
Note: Amounts may not foot due to
rounding.
(1) NM = not meaningful
DONALDSON COMPANY, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In millions)
(Unaudited)
October 31,
July 31,
2023
2023
Assets
Current assets:
Cash and cash equivalents
$
217.8
$
187.1
Accounts receivable, net
582.5
599.7
Inventories, net
429.6
418.1
Prepaid expenses and other current
assets
83.2
81.1
Total current assets
1,313.1
1,286.0
Property, plant and equipment, net
642.3
652.9
Goodwill
469.3
481.1
Intangible assets, net
181.7
188.1
Other long-term assets
162.2
162.4
Total assets
$
2,768.6
$
2,770.5
Liabilities and Stockholders’
Equity
Current liabilities:
Short-term borrowings
$
74.6
$
34.1
Current maturities of long-term debt
210.2
125.0
Accounts payable
324.9
304.9
Accrued employee compensation and related
taxes
110.2
119.4
Deferred revenue
26.0
25.3
Income taxes payable
45.5
32.3
Dividends payable
—
30.4
Other current liabilities
91.2
85.0
Total current liabilities
882.6
756.4
Long-term debt
366.6
496.6
Non-current income taxes payable
56.8
56.5
Deferred income taxes
27.4
32.3
Other long-term liabilities
99.1
108.0
Total liabilities
1,432.5
1,449.8
Total stockholders’ equity
1,336.1
1,320.7
Total liabilities and stockholders’
equity
$
2,768.6
$
2,770.5
DONALDSON COMPANY, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
October 31,
2023
2022
Operating Activities
Net earnings
$
92.1
$
87.2
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
24.3
22.4
Deferred income taxes
(4.6
)
(3.4
)
Stock-based compensation expense
10.5
9.7
Other, net
(0.2
)
4.5
Changes in operating assets and
liabilities
15.9
(2.2
)
Net cash provided by operating
activities
138.0
118.2
Investing Activities
Purchases of property, plant and
equipment
(23.2
)
(28.1
)
Net cash used in investing activities
(23.2
)
(28.1
)
Financing Activities
Proceeds from long-term debt
35.0
—
Repayments of long-term debt
(73.8
)
(40.0
)
Change in short-term borrowings
41.5
(3.3
)
Purchase of treasury stock
(53.3
)
(45.7
)
Dividends paid
(30.2
)
(28.2
)
Exercise of stock options and other
1.9
4.4
Net cash used in financing activities
(78.9
)
(112.8
)
Effect of exchange rate changes on
cash
(5.2
)
(9.6
)
Increase (decrease) in cash and cash
equivalents
30.7
(32.3
)
Cash and cash equivalents, beginning of
period
187.1
193.3
Cash and cash equivalents, end of
period
$
217.8
$
161.0
CONSOLIDATED RATE
ANALYSIS
(Unaudited)
Three Months Ended
October 31,
2023
2022
Gross margin
35.6
%
33.9
%
Operating expenses
20.8
%
19.8
%
Operating margin
14.7
%
14.1
%
Other income, net
(0.4
)%
(0.2
)%
Depreciation and amortization
2.9
%
2.6
%
EBITDA
18.0
%
16.9
%
Effective tax rate
25.1
%
25.2
%
Earnings before income taxes - Mobile
Solutions
17.1
%
14.5
%
Earnings before income taxes - Industrial
Solutions
17.6
%
16.4
%
Earnings before income taxes - Life
Sciences
(7.0
)%
17.2
%
Cash conversion ratio
124.6
%
103.3
%
Three Months Ended
October 31,
2023
2022
Adjusted Rates
Gross margin
35.6
%
33.9
%
Operating expenses
20.8
%
18.9
%
Operating margin
14.7
%
15.0
%
Other income, net
(0.4
)%
(0.2
)%
Depreciation and amortization
2.9
%
2.6
%
EBITDA
18.0
%
17.8
%
Effective tax rate
25.1
%
25.2
%
Earnings before income taxes - Mobile
Solutions
17.1
%
14.5
%
Earnings before income taxes - Industrial
Solutions
17.6
%
16.4
%
Earnings before income taxes - Life
Sciences
(7.0
)%
17.2
%
Cash conversion ratio
124.6
%
97.0
%
Note: Rate analysis metrics are computed
by dividing the applicable amount by net sales, and cash conversion
ratio reflects free cash flow divided by net earnings. Adjusted
rates exclude the impact of certain items not related to ongoing
operations. Adjusted rates are non-GAAP measures; see the
Reconciliation of Non-GAAP Financial Measures schedule for
additional information.
SEGMENT DETAIL
(In millions)
(Unaudited)
Three Months Ended October
31,
2023
2022
Change
Net sales
Mobile Solutions segment
Off-Road
$
94.7
$
103.7
(8.6
)%
On-Road
37.8
36.0
4.8
Aftermarket
407.5
415.3
(1.9
)
Total Mobile Solutions segment
540.0
555.0
(2.7
)
Industrial Solutions segment
Industrial Filtration Solutions
210.6
196.0
7.4
Aerospace and Defense
35.6
33.6
5.9
Total Industrial Solutions segment
246.2
229.6
7.2
Life Sciences segment
Total Life Sciences segment
60.1
62.7
(4.1
)
Total Company
$
846.3
$
847.3
(0.1
)%
Earnings (loss) before income
taxes
Mobile Solutions segment
$
92.2
$
80.3
14.8
%
Industrial Solutions segment
43.3
37.6
15.2
Life Sciences segment
(4.2
)
10.8
NM(1)
Corporate and unallocated
(8.4
)
(12.1
)
30.6
Total Company
$
122.9
$
116.6
5.4
%
Earnings before income taxes
percentage
Mobile Solutions segment
17.1
%
14.5
%
2.6
%
Industrial Solutions segment
17.6
%
16.4
%
1.2
%
Life Sciences segment
(7.0
)%
17.2
%
(24.2
)%
Note: Earnings before income taxes
percentage is calculated by dividing earnings before income taxes
by net sales. Amounts may not foot due to rounding.
(1) NM = not meaningful
SEGMENT SALES PERCENT CHANGE
FROM PRIOR PERIODS BY GEOGRAPHY, AS REPORTED
(Unaudited)
Three Months Ended October 31,
2023
TOTAL
U.S.(1)/CA(2)
EMEA(3)
APAC(4)
LATAM(5)
Mobile Solutions segment
Off-Road
(8.6
)%
(5.0
)%
(1.6
)%
(23.7
)%
(28.2
)%
On-Road
4.8
2.4
13.0
11.0
(18.9
)
Aftermarket
(1.9
)
(1.6
)
(2.7
)
2.6
(5.2
)
Total Mobile Solutions segment
(2.7
)
(1.8
)
(2.0
)
(2.4
)
(6.8
)
Industrial Solutions segment
Industrial Filtration Solutions
7.4
10.3
12.1
(12.5
)
12.9
Aerospace and Defense
5.9
4.8
8.4
19.3
NA
Total Industrial Solutions segment
7.2
9.2
11.6
(11.9
)
12.9
Life Sciences segment
Total Life Sciences segment
(4.1
)
(7.9
)
12.8
(17.4
)
21.7
Total Company
(0.1
)%
1.7
%
3.4
%
(7.1
)%
(4.5
)%
Note: Amounts may not foot due to
rounding.
(1) United States (U.S.)
(2) Canada (CA)
(3) Europe, Middle East and Africa
(EMEA)
(4) Asia Pacific (APAC)
(5) Latin America (LATAM)
SEGMENT SALES PERCENT CHANGE
FROM PRIOR PERIODS BY GEOGRAPHY, CONSTANT CURRENCY
(Unaudited)
Three Months Ended October 31,
2023
TOTAL
U.S./CA
EMEA
APAC
LATAM
Mobile Solutions segment
Off-Road
(10.9
)%
(5.0
)%
(8.7
)%
(21.5
)%
(30.1
)%
On-Road
4.7
2.4
5.5
13.9
(21.2
)
Aftermarket
(3.0
)
(1.6
)
(8.1
)
5.5
(6.6
)
Total Mobile Solutions segment
(3.9
)
(1.8
)
(7.9
)
0.3
(8.3
)
Industrial Solutions segment
Industrial Filtration Solutions
5.9
10.3
5.7
(10.2
)
11.7
Aerospace and Defense
4.0
4.8
0.6
21.0
NA
Total Industrial Solutions segment
5.6
9.2
5.0
(9.7
)
11.7
Life Sciences segment
Total Life Sciences segment
(6.8
)
(7.9
)
4.5
(16.8
)
20.1
Total Company
(1.6
)%
1.7
%
(3.0
)%
(4.8
)%
(6.0
)%
Note: The constant currency presentation,
which is a non-GAAP measure, excludes the impact of fluctuations in
foreign currency exchange rates. The Company believes providing
constant currency information provides valuable supplemental
information regarding its results of operations. The Company
calculates constant currency percentages by converting its current
period local currency financial results using the prior period
exchange rates and compares these adjusted amounts to its prior
period reported results. Amounts may not foot due to rounding.
RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES
(In millions)
(Unaudited)
Three Months Ended
October 31,
2023
2022
Net cash provided by operating
activities
$
138.0
$
118.2
Net capital expenditures
(23.2
)
(28.1
)
Free cash flow
$
114.8
$
90.1
Net earnings
$
92.1
$
87.2
Income taxes
30.8
29.4
Interest expense
5.5
4.5
Depreciation and amortization
24.3
22.4
EBITDA
$
152.7
$
143.5
Adjusted net earnings
$
92.1
$
92.9
Adjusted income taxes
30.8
31.3
Interest expense
5.5
4.5
Depreciation and amortization
24.3
22.4
Adjusted EBITDA
$
152.7
$
151.1
Operating expense
$
176.3
$
167.9
Restructuring and other charges
—
(7.6
)
Adjusted operating expense
$
176.3
$
160.3
Operating income
$
124.6
$
119.3
Restructuring and other charges
—
7.6
Adjusted operating income
$
124.6
$
126.9
Net earnings
$
92.1
$
87.2
Restructuring and other charges, net of
tax
—
5.7
Adjusted net earnings
$
92.1
$
92.9
Diluted EPS
$
0.75
$
0.70
Restructuring and other charges per
share
—
0.05
Adjusted diluted EPS
$
0.75
$
0.75
Note: Although free cash flow, EBITDA,
adjusted EBITDA, adjusted gross profit, adjusted operating expense,
adjusted operating income, adjusted income taxes, adjusted net
earnings and adjusted diluted EPS are not measures of financial
performance under GAAP, the Company believes they are useful in
understanding its financial results. Free cash flow is a commonly
used measure of a company’s ability to generate cash in excess of
its operating needs. EBITDA is a commonly used measure of operating
earnings less non-cash expenses. The adjusted basis presentation
excludes the impact of certain matters not related to the Company’s
ongoing operations. Management believes that the adjusted basis
presentation reflects management’s performance in operating the
Company and provides a meaningful representation of the performance
of the Company’s core business and is useful to understanding its
financial results. A shortcoming of these financial measures is
that they do not reflect the Company’s actual results under GAAP.
Management does not intend these items to be considered in
isolation or as a substitute for the related GAAP measures. Amounts
may not foot due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231129766852/en/
Sarika Dhadwal (952) 887-3753 Sarika.Dhadwal@Donaldson.com
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