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Why Is Donaldson (DCI) Up 3.1% 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 3.1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Donaldson Q1 Earnings & Revenues Surpass Estimates

Donaldson’s first-quarter fiscal 2022 (ended Oct 31, 2021) earnings and sales surpassed the Zacks Consensus Estimate by 10.9% and 2.4%, respectively.

The company’s earnings in the reported quarter were 61 cents per share, beating the Zacks Consensus Estimate of 55 cents. The bottom line improved 27.1% from the year-ago quarter’s 48 cents. Sales growth in the reported quarter more than offset the headwinds stemming from supply-chain constraints and higher cost of raw material.

Revenue Results

In the fiscal first quarter, Donaldson’s net sales were $760.9 million, reflecting year-over-year growth of 19.5%. The top line surpassed the Zacks Consensus Estimate of $743 million.

Region-wise, the company’s net sales in the United States/Canada increased 19.8% year over year. Likewise, the top line expanded 19.6% in Europe, the Middle East and Africa, 13.6% in the Asia Pacific and 33.5% in Latin America.

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 69.3% of net sales in first-quarter fiscal 2022) sales were $527.2 million, reflecting year-over-year growth of 20.9%.

The results were positively impacted by growth of 44.9% in Off-Road, 22.9% in Aerospace and Defense and 18.1% in Aftermarket sales. However, sales declined 1.4% in On-Road.

Revenues generated from Industrial Products (accounting for 30.7% of net sales in first-quarter fiscal 2022) were $233.7 million, increasing 16.6% from the year-ago quarter.

Results benefited from sales growth of 22% in Industrial Filtration Solutions and 23.3% in Special Applications, partially offset by a decline of 27.8% in Gas Turbine Systems.

Margin Profile

In the reported quarter, Donaldson’s cost of sales increased 21.7% year over year to $503.9 million. It represented 66.2% of net sales compared with 65% in the year-ago quarter. Gross profit increased 15.4% to $257 million, while gross margin declined 120 basis points (bps) to 33.8%. The margin results were negatively impacted by higher raw material costs, labor and freight, partially offset by volume growth and favorable pricing.

Operating expenses increased 10.4% year over year to $149.5 million. It represented 19.7% of net sales compared with 21.3% in the year-ago quarter. Operating profit in the quarter under review increased 23.2% to $107.5 million. Operating margin was 14.1%, up 40 bps year over year.

Effective tax rate in the reported quarter was 25.9% compared with 24.7% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting first-quarter fiscal 2022, Donaldson’s cash and cash equivalents were $200.8 million, down 9.9% from $222.8 million recorded in the last reported quarter. Long-term debt was up 18.9% sequentially to $548.1 million.

In the first three months of fiscal 2022, the company repaid the long-term debt of $35 million.

In the reported quarter, it generated net cash of $42.9 million from operating activities, reflecting a decrease of 66.7% from the year-ago figure. Capital expenditure totaled $18.3 million compared with $18.8 million in the year-ago quarter. Free cash flow in the reported quarter decreased 77.7% to $24.6 million.

In the first three months of fiscal 2022, the company used $102.9 million for repurchasing shares and $27.4 million for paying out dividends.


For fiscal 2022 (ending July 2022), Donaldson anticipates benefiting from solid demand for its products. However, supply-chain challenges weigh on the company.

It expects earnings per share of $2.57-$2.73 compared with $2.50-$2.66 predicted earlier. Sales are anticipated to increase 8-12% year over year compared with 5-10% guided previously. Movements in foreign currencies are expected to have a nominal impact on sales.

On a segmental basis, Engine Products sales are anticipated to increase 8-12% year over year. The segment’s performance is likely to benefit from growth in Off-Road and Aftermarket sales. Also, growth in Aerospace and Defense sales is anticipated. However, supply chain issues are expected to have a negative impact on On-Road sales.

Sales growth for Industrial Products is anticipated to be 7-11% year over year. The segment is likely to gain from growth in Industrial Filtration Solutions, Gas Turbine Systems and Special Applications.

Operating margin is expected to be 14.1-14.7% for fiscal 2022. Interest expenses are predicted to be $14 million. Other income is likely to be $7-$11 million. Effective tax rate is anticipated to be 24-26%.

Capital expenditure for the fiscal year is expected to be $90-$110 million. Free cash flow conversion is anticipated to be 70-80%. Share buybacks will account for 2% of outstanding shares.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Donaldson has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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