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Donaldson (DCI) Q3 Earnings Beat Estimates, Revenues Rise Y/Y

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Donaldson Company, Inc.’s (DCI - Free Report) third-quarter fiscal 2023 (ended Apr 30, 2023) earnings of 76 cents per share beat the Zacks Consensus Estimate by 2.7% and sales beat the same by 0.5%.

The bottom line improved 13.4% from the year-ago fiscal quarter’s figure of 67 cents per share. The sales growth in the reported quarter was driven by accretive pricing.

Revenue Results

In the fiscal third quarter, Donaldson’s net sales reached $875.7 million, reflecting year-over-year growth of 2.6%. The top line beat the Zacks Consensus Estimate of $872 million.

Region-wise, DCI’s net sales in the United States/Canada increased 8.2% year over year. The top line expanded 1.9% in Europe, the Middle East and Africa. However, the same decreased 10.8% in Latin America and 0.5% in the Asia Pacific.

Donaldson started reporting revenues under three segments starting the 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:

The Mobile Solutions segment’s (accounting for 63.4% of net sales in third-quarter fiscal 2023) sales were $555 million, reflecting a year-over-year decline of 0.1%.

The results were positively impacted by 10.7% growth in Off-Road and 5.3% growth in On-Road. However, aftermarket sales declined 3.3% in the quarter.

Revenues generated from the Industrial Solutions segment (accounting for 29.9% of net sales in third-quarter fiscal 2023) were $261.5 million, increasing 13.8% from the year-ago fiscal quarter.

The results benefited from sales growth of 12.5% in Industrial Filtration Solutions and 22.3% in Aerospace and Defense.

Revenues generated from Life Sciences (accounting for 6.7% of net sales in third-quarter fiscal 2023) were $59.2 million, decreasing 12.6% from the year-ago fiscal quarter.

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

Margin Profile

In the fiscal third quarter, Donaldson’s cost of sales increased 0.5% year over year to $586.9 million. Gross profit jumped 7.4% to $288.8 million. The gross margin increased 150 basis points (bps) to 33%. The margin results benefited from favorable pricing, partially offset by higher input costs.

Operating expenses increased 4.3% year over year to $164.8 million. Operating profit in the quarter under review increased 11.7% to $124.0 million. The operating margin was 14.2%, increasing 120 bps year over year.

The effective tax rate in the quarter was 22.9%, compared with 25.4% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting third-quarter fiscal 2023, Donaldson’s cash and cash equivalents were $186.0 million, down 3.8% from $193.3 million recorded in the last fiscal year’s comparable quarter. Long-term debt was down 27% year over year to $470.5 million.

In the first nine months of fiscal 2023, Donaldson repaid its long-term debt of $135 million.

In the same time period, DCI generated net cash of $353.7 million from operating activities, reflecting an increase of 145.8% from the year-ago figure. Capital expenditure (net) totaled $92.8 million, compared with $63.4 million in the year-ago fiscal period. Free cash flow increased 199.5% to $260.9 million.

DCI also used $119.3 million to repurchase treasury stocks and $84.1 million to pay out dividends during the first nine months of fiscal 2023.

2023 Outlook

For fiscal 2023 (ending July 2023), Donaldson expects earnings per share of $2.90-$2.96, compared with $2.89-$2.97 predicted earlier. The company anticipates adjusted earnings of $3.00-$3.06 per share. The midpoint of the guided range — $3.03 — is lower than the Zacks Consensus Estimate of $3.05 per share. Sales are anticipated to increase 3-5% from the fiscal 2022 level, compared with 2-6% predicted earlier. Positive pricing is anticipated to have an accretive impact of 8%. However, movement in foreign currencies is expected to negatively impact sales by 4%.

On a segmental basis, Mobile Solutions’ sales are anticipated to increase 2-4% 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 11-13% from the fiscal 2022 figure, compared with 8-12% predicted earlier. The segment is likely to gain from low-double-digit growth in Industrial Filtration Solutions and mid-teen digits growth in Aerospace and Defense.

The company expects its Life Sciences segment’s sales to decline between 10% and12% due to weakness in the disk drive market and bioprocessing equipment delivery timing.

The adjusted operating margin is expected to be 14.4-14.8% for fiscal 2023, compared with 14.6-15% anticipated earlier. Interest expenses are predicted to be approximately $20 million. The effective tax rate is anticipated to be 24%.

Capital expenditure for the fiscal year is expected to be $115-$130 million. Free cash flow conversion is anticipated to be 105-115%. Share buybacks are expected to account for 2% of the outstanding shares.

Zacks Rank & Stocks to Consider

DCI currently carries a Zacks Rank #3 (Hold). Some top-ranked companies from the Industrial Products sector are discussed below:

Ingersoll Rand Inc. (IR - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.

IR delivered a trailing four-quarter earnings surprise of 12.6%, on average. In the past 60 days, estimates for Ingersoll Rand’s 2023 earnings have increased 7.5%. The stock has improved 8.4% in the year-to-date period.

Alamo Group Inc. (ALG - Free Report) currently sports a Zacks Rank of 1. ALG delivered a trailing four-quarter earnings surprise of 17.7%, on average.

In the past 60 days, estimates for Alamo’s 2023 earnings have increased 12.7%. The stock has gained 17.6% in the year-to-date period.

Axon Enterprise (AXON - Free Report) sports a Zacks Rank of 1, at present. The company has a trailing four-quarter earnings surprise of 44.4%, on average.

In the past 60 days, estimates for Axon’s 2023 earnings have increased 13%. The stock has rallied 16.3% in the year-to-date period.

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