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Donaldson Company, Inc.’s (DCI - Free Report) second-quarter fiscal 2023 (ended Jan 31, 2023) earnings of 66 cents per share 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.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
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. 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
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.
Zacks Rank & Other Stocks to Consider
DCI currently has a Zacks Rank #2 (Buy). Some other top-ranked companies from the Industrial Products sector are discussed below:
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Ingersoll Rand Inc. (IR - Free Report) presently carries a Zacks Rank of 2. IR’s earnings surprise in the last four quarters was 8.5%, on average.
In the past 60 days, Ingersoll Rand’s earnings estimates have increased 3.4% for 2023. The stock has gained 15.1% in the past six months.
Parker-Hannifin Corporation (PH - Free Report) presently has a Zacks Rank of 2. PH’s earnings surprise in the last four quarters was 9.1%, on average.
In the past 60 days, Parker-Hannifin’s earnings estimates have increased 2% for fiscal 2023 (ending June 2023). The stock has rallied 18.8% in the past six months.
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Donaldson (DCI) Q2 Earnings Beat Estimates, Revenues Rise Y/Y
Donaldson Company, Inc.’s (DCI - Free Report) second-quarter fiscal 2023 (ended Jan 31, 2023) earnings of 66 cents per share 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.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
Donaldson Company, Inc. price-consensus-eps-surprise-chart | Donaldson Company, Inc. Quote
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. 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
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.
Zacks Rank & Other Stocks to Consider
DCI currently has a Zacks Rank #2 (Buy). Some other top-ranked companies from the Industrial Products sector are discussed below:
Deere & Company (DE - Free Report) presently sports a Zacks Rank #1 (Strong Buy). DE’s earnings surprise in the last four quarters was 4.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
In the past 60 days, Deere & Company’s earnings estimates have increased 6.4% for fiscal 2023 (ending October 2023). The stock has rallied 11.7% in the past six months.
Ingersoll Rand Inc. (IR - Free Report) presently carries a Zacks Rank of 2. IR’s earnings surprise in the last four quarters was 8.5%, on average.
In the past 60 days, Ingersoll Rand’s earnings estimates have increased 3.4% for 2023. The stock has gained 15.1% in the past six months.
Parker-Hannifin Corporation (PH - Free Report) presently has a Zacks Rank of 2. PH’s earnings surprise in the last four quarters was 9.1%, on average.
In the past 60 days, Parker-Hannifin’s earnings estimates have increased 2% for fiscal 2023 (ending June 2023). The stock has rallied 18.8% in the past six months.