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Donaldson (DCI) Up 4.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Donaldson (DCI - Free Report) . Shares have added about 4.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Donaldson Q2 Earnings & Revenues Top Estimates, Rise Y/Y

Donaldson reported second-quarter fiscal 2024 (ended Jan 31, 2024) adjusted earnings of 81 cents per share, which surpassed the Zacks Consensus Estimate of 73 cents. The bottom line increased 15.9% year over year.

Revenue Results

In the fiscal second quarter, total revenues of $876.7 million outperformed the Zacks Consensus Estimate of $861 million. The top line increased 5.8% (up 5.3% at constant currency) in the reported quarter, driven by volume growth and benefits of pricing actions.

Region-wise, DCI’s net sales in the United States/Canada increased 8.8% year over year. The metric declined 3% year over year in Europe, the Middle East and Africa. However, the same increased 9% in Latin America and 9.1% in the Asia Pacific.

Donaldson started reporting revenues under three segments starting second-quarter fiscal 2023. The segments are Mobile Solutions, Industrial Solutions and Life Sciences.

A brief snapshot of segmental sales is provided below:

The Mobile Solutions segment’s (accounting for 62.7% of net sales) sales were $550.3 million, reflecting a year-over-year increase of 5.3%. Results were benefited from an 11.3% improvement in aftermarket sales. However, sales declined 13.4% in Off-Road and 3% in On-Road businesses during the quarter.

Revenues generated from the Industrial Solutions segment (30.1%) were $263.4 million, increasing 6.9% year over year. Results benefited from sales growth of 6% in Industrial Filtration Solutions and 12.4% in Aerospace and Defense.

Revenues generated from Life Sciences (7.2%) were $63 million, increasing 6% year over year.

Margin Profile

In the fiscal second quarter, Donaldson’s cost of sales increased 4.4% year over year to $568.1 million. Gross profit jumped 8.5% to $308.6 million. The gross margin increased 90 basis points (bps) to 35.2% on the back of pricing benefits, deflation in freight and select material costs.

Operating expenses increased 6.4% year over year to $178.9 million. Operating profit in the quarter under review increased 11.5% to $129.7 million. The operating margin was 14.8%, increasing 80 bps year over year.

The effective tax rate in the quarter was 23.5% compared with 24.1% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting second-quarter fiscal 2024, Donaldson’s cash and cash equivalents were $193.8 million compared with $187.1 million in the fourth quarter of fiscal 2023. Long-term debt was $352 million compared with $496.6 million in the fourth quarter of fiscal 2023.

In the first six months of fiscal 2024, DCI generated net cash of $225 million from operating activities, reflecting an increase of 2% year over year. Capital expenditure (net) totaled $44.5 million compared with $57.6 million in the year-ago fiscal period. Free cash flow increased 10.8% to $180.5 million. In the same time frame, Donaldson repaid its long-term debt of $88.7 million.

DCI also used $86.6 million to repurchase treasury stocks and $60.3 million to pay out dividends during the first six months of fiscal 2024.

2024 Outlook

For fiscal 2024 (ending July 2024), Donaldson expects adjusted earnings per share of $3.24-$3.32 compared with $3.14-$3.30 mentioned earlier. Sales are anticipated to increase 3-7% from the fiscal 2023 reported level. Positive pricing is anticipated to have an accretive impact of 2%. Movement in foreign currencies is expected to positively impact sales by 1%.

On a segmental basis, Mobile Solutions’ sales are anticipated to increase 1-5% from the fiscal 2023 level. Sales growth for Industrial Solutions is anticipated to be 3-7% from the fiscal 2023 figure. The company expects its Life Sciences segment’s sales to increase approximately 20%.

Interest expenses are predicted to be approximately $23 million, while other income is projected to be $10-$12 million. The effective tax rate is anticipated to be 24-25%.

Capital expenditure for the fiscal year is expected to be $95-$110 million. Free cash flow conversion is anticipated to be 95-105%. Share buybacks are expected to account for 2% of the outstanding shares.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, 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.


Estimates have been 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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