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Donaldson (DCI) Q4 Earnings Top Estimates, Revenues Miss

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Donaldson Company, Inc. (DCI - Free Report) 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.

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.

Donaldson Company, Inc. Price, Consensus and EPS Surprise

Donaldson Company, Inc. Price, Consensus and EPS Surprise

Donaldson Company, Inc. price-consensus-eps-surprise-chart | Donaldson Company, Inc. Quote

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 Latin America 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. Free cash flow in the reported quarter increased 24.9% year over year to $105.5 million.

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. Sales in the first half of fiscal 2021 are likely to be down year over year.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are Tennant Company (TNC - Free Report) , CECO Environmental Corp. (CECE - Free Report) and Casella Waste Systems, Inc. (CWST - Free Report) . While Tennant sports a Zacks Rank #1 (Strong Buy), CECO and Casella carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennant delivered trailing-four quarter positive earnings surprise of 107.12%, on average.

CECO delivered a positive earnings surprise of 49.13%, on average, in the trailing four quarters.

Casella delivered a positive earnings surprise of 158.08%, on average, in the trailing four quarters.

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