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Why Is Donaldson (DCI) Up 1.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Donaldson (DCI - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Donaldson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Donaldson Q4 Earnings Top Estimates, Revenues Miss
Donaldson reported mixed results for fourth-quarter fiscal 2020 (ended Jul 31, 2020), with earnings beating estimates by 13.6% and sales missing the same by 0.1%.
The company’s adjusted earnings in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 44 cents. However, the bottom line decreased 18% from the year-ago quarter’s figure of 61 cents due to decline in sales caused by the pandemic.
In fiscal 2020, the company’s adjusted earnings were $2.00, down 9.5% from $2.21 reported in the previous fiscal year.
Top-Line Results
In the fiscal fourth quarter, Donaldson’s net sales were $617.4 million, reflecting a year-over-year decline of 15.1%. The results suffered from a 13.7% fall in organic sales mainly due to the adverse impacts of the pandemic. Forex woes too had a negative impact of 1.4% on sales.
The top line narrowly missed the Zacks Consensus Estimate of $618 million.
In fiscal 2020, the company’s net sales were $2,581.8, down 9.2% from $2,844.9 reported in the previous fiscal year.
On a geographical basis, the company’s net sales in the United States decreased 19% year over year. Results also suffered from a 12% decline in Europe, Middle East and Africa’s sales, and a 9.2% dip in the Asia Pacific’s sales. Sales in LatinAmerica declined 21.9% year over year.
The company reports revenues under the following segments — Engine Products and Industrial Products. A brief snapshot of the segmental sales is provided below:
Engine Products’ (accounting for 66.8% of net sales in fourth-quarter fiscal 2020) sales were $412.3 million, reflecting a year-over-year decline of 15.3%.
The results were adversely impacted by a fall of 24.3% in Off-Road, 43.5% in On-Road and 10.7% in Aftermarket sales. Also, the company recorded a 3.4% decline in Aerospace and Defense sales.
Revenues generated from Industrial Products (accounting for 33.2% of net sales in fourth-quarter fiscal 2020) were $205.1 million, decreasing 14.6% from the year-ago quarter.
Results suffered from a sales decline of 18.9% in Industrial Filtration Solutions and 9.5% decrease in Special Applications’ sales, partially offset by a 6% rise in Gas Turbine Systems.
Margin Profile
In the reported quarter, Donaldson’s cost of sales decreased 15.2% year over year to $409.5 million. It represented 66.3% of net sales compared with 66.5% in the year-ago quarter. Adjusted gross margin in the quarter was 33.7%, up 20 basis points (bps). Results benefited from a favorable sales mix, reduced raw material costs and benefits of Donaldson’s optimization initiatives, partially offset by lower sales.
Operating expenses declined 10.1% year over year to $125.4 million. It represented 20.3% of net sales compared with 19.2% in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.4%, down 100 bps. Adjusted effective tax rate was 21.1% compared with 21.4% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting fiscal 2020, Donaldson’s cash and cash equivalents were $236.6 million, down 27.5% from $326.5 million recorded in the last quarter. Long-term debt was down 16% sequentially to $617.4 million.
In fiscal 2020, the company repaid the long-term debt of $281 million, while raised $262.4 million from long-term debts.
In fiscal 2020, Donaldson generated net cash of $387 million from operating activities, reflecting an increase of 11.9% from the year-ago figure. Capital expenditure totaled $122.4 million compared with $150.4 million in the previous fiscal. The company’s free cash flow increased 35.4% to $264.6 million, on a year-over-year basis.
In fiscal 2020, the company used $94.3 million for repurchasing shares and $106.4 million for paying out dividends.
Outlook
Donaldson is wary about the uncertainties caused by the coronavirus outbreak. It kept its financial projections suspended for fiscal 2021 (ending July 2021).
However, the company noted that share buybacks for the year will be a minimum of 1% of outstanding shares. Capital expenditure is likely to be lower, while liquidity will be strong. Also, it expects free cash flow conversion to be more than 100%. Sales in the first half of fiscal 2021 are likely to be down year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, Donaldson has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Donaldson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Donaldson (DCI) Up 1.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Donaldson (DCI - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Donaldson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Donaldson Q4 Earnings Top Estimates, Revenues Miss
Donaldson reported mixed results for fourth-quarter fiscal 2020 (ended Jul 31, 2020), with earnings beating estimates by 13.6% and sales missing the same by 0.1%.
The company’s adjusted earnings in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 44 cents. However, the bottom line decreased 18% from the year-ago quarter’s figure of 61 cents due to decline in sales caused by the pandemic.
In fiscal 2020, the company’s adjusted earnings were $2.00, down 9.5% from $2.21 reported in the previous fiscal year.
Top-Line Results
In the fiscal fourth quarter, Donaldson’s net sales were $617.4 million, reflecting a year-over-year decline of 15.1%. The results suffered from a 13.7% fall in organic sales mainly due to the adverse impacts of the pandemic. Forex woes too had a negative impact of 1.4% on sales.
The top line narrowly missed the Zacks Consensus Estimate of $618 million.
In fiscal 2020, the company’s net sales were $2,581.8, down 9.2% from $2,844.9 reported in the previous fiscal year.
On a geographical basis, the company’s net sales in the United States decreased 19% year over year. Results also suffered from a 12% decline in Europe, Middle East and Africa’s sales, and a 9.2% dip in the Asia Pacific’s sales. Sales in LatinAmerica declined 21.9% year over year.
The company reports revenues under the following segments — Engine Products and Industrial Products. A brief snapshot of the segmental sales is provided below:
Engine Products’ (accounting for 66.8% of net sales in fourth-quarter fiscal 2020) sales were $412.3 million, reflecting a year-over-year decline of 15.3%.
The results were adversely impacted by a fall of 24.3% in Off-Road, 43.5% in On-Road and 10.7% in Aftermarket sales. Also, the company recorded a 3.4% decline in Aerospace and Defense sales.
Revenues generated from Industrial Products (accounting for 33.2% of net sales in fourth-quarter fiscal 2020) were $205.1 million, decreasing 14.6% from the year-ago quarter.
Results suffered from a sales decline of 18.9% in Industrial Filtration Solutions and 9.5% decrease in Special Applications’ sales, partially offset by a 6% rise in Gas Turbine Systems.
Margin Profile
In the reported quarter, Donaldson’s cost of sales decreased 15.2% year over year to $409.5 million. It represented 66.3% of net sales compared with 66.5% in the year-ago quarter. Adjusted gross margin in the quarter was 33.7%, up 20 basis points (bps). Results benefited from a favorable sales mix, reduced raw material costs and benefits of Donaldson’s optimization initiatives, partially offset by lower sales.
Operating expenses declined 10.1% year over year to $125.4 million. It represented 20.3% of net sales compared with 19.2% in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.4%, down 100 bps. Adjusted effective tax rate was 21.1% compared with 21.4% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting fiscal 2020, Donaldson’s cash and cash equivalents were $236.6 million, down 27.5% from $326.5 million recorded in the last quarter. Long-term debt was down 16% sequentially to $617.4 million.
In fiscal 2020, the company repaid the long-term debt of $281 million, while raised $262.4 million from long-term debts.
In fiscal 2020, Donaldson generated net cash of $387 million from operating activities, reflecting an increase of 11.9% from the year-ago figure. Capital expenditure totaled $122.4 million compared with $150.4 million in the previous fiscal. The company’s free cash flow increased 35.4% to $264.6 million, on a year-over-year basis.
In fiscal 2020, the company used $94.3 million for repurchasing shares and $106.4 million for paying out dividends.
Outlook
Donaldson is wary about the uncertainties caused by the coronavirus outbreak. It kept its financial projections suspended for fiscal 2021 (ending July 2021).
However, the company noted that share buybacks for the year will be a minimum of 1% of outstanding shares. Capital expenditure is likely to be lower, while liquidity will be strong. Also, it expects free cash flow conversion to be more than 100%. Sales in the first half of fiscal 2021 are likely to be down year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, Donaldson has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Donaldson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.