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Donaldson (DCI) Down 2.8% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Donaldson (DCI - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Donaldson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Donaldson’s second-quarter fiscal 2023 (ended Jan 31, 2023) earnings beat the Zacks Consensus Estimate by 8.7%. However, sales missed the same by 1.8%.
The bottom line improved 31.6% from the year-ago fiscal quarter’s 57 cents. The sales growth in the reported quarter was driven by accretive pricing.
Revenue Results
In the fiscal second quarter, Donaldson’s net sales reached $828.3 million, reflecting year-over-year growth of 3.2%. The top line missed the Zacks Consensus Estimate of $843 million.
Region-wise, DCI’s net sales in the United States/Canada increased 10.3% year over year. The top line expanded 4.3% in Europe, the Middle East and Africa and 14.1% in Latin America. However, the same decreased 16.4% in the Asia Pacific.
Donaldson started reporting revenues under three segments starting fiscal second-quarter of 2023. The segments are as follows: Mobile Solutions, Industrial Solutions and Life Sciences. A brief snapshot of the segmental sales is provided below:
Mobile Solutions’ (accounting for 63.1% of net sales in second-quarter fiscal 2023) sales were $522.5 million, reflecting year-over-year growth of 1.7%.
The results were positively impacted by 15.5% growth in Off-Road and 4.1% growth in On-Road. However, aftermarket sales declined 1.7% in the quarter.
Revenues generated from Industrial Solutions (accounting for 29.7% of net sales in second-quarter fiscal 2023) were $246.4 million, increasing 12.8% from the year-ago fiscal quarter.
The results benefited from sales growth of 10.7% in Industrial Filtration Solutions and 27.8% in Aerospace and Defense.
Revenues generated from Life Sciences (accounting for 7.2% of net sales in second-quarter fiscal 2023) were $59.4 million, decreasing 15.6% from the year-ago fiscal quarter.
Margin Profile
In the fiscal second quarter, Donaldson’s cost of sales decreased 1.6% year over year to $543.9 million. Gross profit jumped 13.9% to $284.4 million, while the gross margin increased 320 basis points (bps) to 34.3%. The margin results benefited from favorable pricing, partially offset by higher input costs.
Operating expenses increased 9.1% year over year to $168.1 million. Operating profit in the quarter under review increased 21.6% to $116.3 million. The operating margin was 14%, increasing 210 basis points (bps) year over year.
The effective tax rate in the quarter was 24.1%, in line with the year-ago quarter.
Balance Sheet & Cash Flow
While exiting second-quarter fiscal 2023, Donaldson’s cash and cash equivalents were $179.4 million, down 7.2% from $193.3 million recorded in the last fiscal year’s comparable quarter. Long-term debt was down 3% year over year to $624.8 million.
In the first six months of fiscal 2023, Donaldson repaid its long-term debt of $65 million.
In the same time period, DCI generated net cash of $220.5 million from operating activities, reflecting an increase of 177% from the year-ago figure. Capital expenditure (net) totaled $57.6 million compared with $33.5 million in the year-ago fiscal period. Free cash flow increased 251.8% to $162.9 million.
DCI also used $115.2 million to repurchase shares and $56.2 million to pay out dividends during the first six months of fiscal 2023.
Outlook
For fiscal 2023 (ending July 2023), Donaldson expects earnings per share of $2.89-$2.97 per share compared with the $2.91-$3.07 per share predicted earlier. The company anticipates adjusted earnings of $2.99-$3.07 per share. The mid-point of the guided range — $3.03 — is higher than the Zacks Consensus Estimate of $3 per share. Sales are anticipated to increase 2-6% from the fiscal 2022 level compared with 1-5% predicted earlier. Positive pricing is anticipated to have an accretive impact of 6%. However, movement in foreign currencies is expected to negatively impact sales by 4%.
On a segmental basis, Mobile Solutions’ sales are anticipated to increase 1-5% from the fiscal 2022 level. The segment’s performance is likely to benefit from low-single-digit growth in the aftermarket. On-road and off-road sales are expected to be up in mid-single digits and high-single digits, respectively.
Sales growth for Industrial Solutions is anticipated to be 8-12% from the fiscal 2022 figure, compared with 1-5% predicted earlier. The segment is likely to gain from high-single-digit growth in Industrial Filtration Solutions and low-double digits growth in Aerospace and Defense.
The company expects its Life Sciences sales to decline between 5% and9% due to weakness in the Disk Drive market.
The adjusted operating margin is expected to be 14.6-15.0% for fiscal 2023, compared with 14.5-15.1% anticipated earlier. Interest expenses are predicted to be approximately $20 million compared with the $18 million expected earlier. The effective tax rate is anticipated to be 24-26% compared with the 25-27% predicted.
Capital expenditure for the fiscal year is expected to be $115-$130 million compared with $115-$135 million expected earlier. Free cash flow conversion is anticipated to be 110-120% compared with 110-125% expected earlier. Share buybacks are expected to account for 2% of the outstanding shares.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Donaldson has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 B. 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. It comes with little surprise Donaldson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Donaldson (DCI) Down 2.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Donaldson (DCI - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Donaldson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Donaldson Q2 Earnings Beat Estimates, Revenues Rise Y/Y
Donaldson’s second-quarter fiscal 2023 (ended Jan 31, 2023) earnings beat the Zacks Consensus Estimate by 8.7%. However, sales missed the same by 1.8%.
The bottom line improved 31.6% from the year-ago fiscal quarter’s 57 cents. The sales growth in the reported quarter was driven by accretive pricing.
Revenue Results
In the fiscal second quarter, Donaldson’s net sales reached $828.3 million, reflecting year-over-year growth of 3.2%. The top line missed the Zacks Consensus Estimate of $843 million.
Region-wise, DCI’s net sales in the United States/Canada increased 10.3% year over year. The top line expanded 4.3% in Europe, the Middle East and Africa and 14.1% in Latin America. However, the same decreased 16.4% in the Asia Pacific.
Donaldson started reporting revenues under three segments starting fiscal second-quarter of 2023. The segments are as follows: Mobile Solutions, Industrial Solutions and Life Sciences. A brief snapshot of the segmental sales is provided below:
Mobile Solutions’ (accounting for 63.1% of net sales in second-quarter fiscal 2023) sales were $522.5 million, reflecting year-over-year growth of 1.7%.
The results were positively impacted by 15.5% growth in Off-Road and 4.1% growth in On-Road. However, aftermarket sales declined 1.7% in the quarter.
Revenues generated from Industrial Solutions (accounting for 29.7% of net sales in second-quarter fiscal 2023) were $246.4 million, increasing 12.8% from the year-ago fiscal quarter.
The results benefited from sales growth of 10.7% in Industrial Filtration Solutions and 27.8% in Aerospace and Defense.
Revenues generated from Life Sciences (accounting for 7.2% of net sales in second-quarter fiscal 2023) were $59.4 million, decreasing 15.6% from the year-ago fiscal quarter.
Margin Profile
In the fiscal second quarter, Donaldson’s cost of sales decreased 1.6% year over year to $543.9 million. Gross profit jumped 13.9% to $284.4 million, while the gross margin increased 320 basis points (bps) to 34.3%. The margin results benefited from favorable pricing, partially offset by higher input costs.
Operating expenses increased 9.1% year over year to $168.1 million. Operating profit in the quarter under review increased 21.6% to $116.3 million. The operating margin was 14%, increasing 210 basis points (bps) year over year.
The effective tax rate in the quarter was 24.1%, in line with the year-ago quarter.
Balance Sheet & Cash Flow
While exiting second-quarter fiscal 2023, Donaldson’s cash and cash equivalents were $179.4 million, down 7.2% from $193.3 million recorded in the last fiscal year’s comparable quarter. Long-term debt was down 3% year over year to $624.8 million.
In the first six months of fiscal 2023, Donaldson repaid its long-term debt of $65 million.
In the same time period, DCI generated net cash of $220.5 million from operating activities, reflecting an increase of 177% from the year-ago figure. Capital expenditure (net) totaled $57.6 million compared with $33.5 million in the year-ago fiscal period. Free cash flow increased 251.8% to $162.9 million.
DCI also used $115.2 million to repurchase shares and $56.2 million to pay out dividends during the first six months of fiscal 2023.
Outlook
For fiscal 2023 (ending July 2023), Donaldson expects earnings per share of $2.89-$2.97 per share compared with the $2.91-$3.07 per share predicted earlier. The company anticipates adjusted earnings of $2.99-$3.07 per share. The mid-point of the guided range — $3.03 — is higher than the Zacks Consensus Estimate of $3 per share. Sales are anticipated to increase 2-6% from the fiscal 2022 level compared with 1-5% predicted earlier. Positive pricing is anticipated to have an accretive impact of 6%. However, movement in foreign currencies is expected to negatively impact sales by 4%.
On a segmental basis, Mobile Solutions’ sales are anticipated to increase 1-5% from the fiscal 2022 level. The segment’s performance is likely to benefit from low-single-digit growth in the aftermarket. On-road and off-road sales are expected to be up in mid-single digits and high-single digits, respectively.
Sales growth for Industrial Solutions is anticipated to be 8-12% from the fiscal 2022 figure, compared with 1-5% predicted earlier. The segment is likely to gain from high-single-digit growth in Industrial Filtration Solutions and low-double digits growth in Aerospace and Defense.
The company expects its Life Sciences sales to decline between 5% and9% due to weakness in the Disk Drive market.
The adjusted operating margin is expected to be 14.6-15.0% for fiscal 2023, compared with 14.5-15.1% anticipated earlier. Interest expenses are predicted to be approximately $20 million compared with the $18 million expected earlier. The effective tax rate is anticipated to be 24-26% compared with the 25-27% predicted.
Capital expenditure for the fiscal year is expected to be $115-$130 million compared with $115-$135 million expected earlier. Free cash flow conversion is anticipated to be 110-120% compared with 110-125% expected earlier. Share buybacks are expected to account for 2% of the outstanding shares.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Donaldson has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 B. 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. It comes with little surprise Donaldson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.