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Why Is Donaldson (DCI) Down 4.4% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Donaldson Company, Inc. (DCI - Free Report) . Shares have lost about 4.4% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is DCI due for a breakout? 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 catalysts.

Donaldson Q2 Earnings Miss Estimates, Revenues Up Y/Y

Donaldson posted adjusted earnings of 43 cents per share in second-quarter fiscal 2018, missing the Zacks Consensus Estimate by a penny.

However, the reported figure fared better than the prior-year quarter tally of 35 cents, reflecting an increase of 22.9%. The bottom line was driven by impressive growth in revenues as well as favorable market conditions.

Inside the Headlines

Donaldson’s total sales came in at $664.7 million, reflecting an improvement of 20.7% on a year-over-year basis. The top line also came ahead of the Zacks Consensus Estimate of $629.6 million. In fact, solid performance at the company’s Engine Products and Industrial Products segments led to the increase in sales. Notably, the year-over-year improvement in sales includes a benefit of about 4.6% and 1.5% from currency translation and acquisitions, respectively.

The Engine Products segment’s sales were up 22.2% year over year to $442.4 million. All the four sub-segments under Engine Products — Off-Road, On Road, Aftermarket as well as Aerospace and Defense — recorded an increase in sales, thus leading to the company’s overall strong performance. Sales in Aftermarket, On-road, Off-Road and Aerospace and Defense business increased by 18.3%, 50.6%, 37% and 2%, respectively.

Sales at the Industrial Products segment were up 17.7% year over year to $222.3 million. In the Industrial Filtration Solutions, Gas Turbine Systems and Special Applications business the metric improved 13.4%, 55.7% and 11.3%, respectively.

However, Donaldson’s adjusted operating margin contracted 30 basis points (bps) year over year to 12.3%. Meanwhile, the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) were $100.5 million compared with $89.5 million recorded a year ago.

Liquidity & Cash Flow

As of Jan 31, 2018, Donaldson had cash and equivalents of $362.2 million compared with $308.4 million as on Jul 31, 2017. The company had long-term debt of $667.7 million as on Jan 31, 2018 compared with $537.3 million as on Jul 31, 2017.

Share Repurchase Program

In the fiscal second quarter, the company returned $23.4 million to shareholders through share dividends. Additionally, Donaldson repurchased shares worth $20.2 million, which represents 0.3% of its outstanding shares.

2018 Guidance

Concurrent with the earnings release, the company issued guidance for fiscal 2018. Donaldson currently expects fiscal 2018 GAAP earnings in the range of $1.93-$2.01 per share compared with its earlier projection of $1.90 to $2.04. Based on the current market scenario, the company expects a 13-15% increase in full-year sales year over year.

Segment-wise, Donaldson projects Engine Products sales to increase in the range of 17-19% compared with its earlier projection of 13-17%. Markedly, sales increase in Aftermarket, Off-Road, On-Road as well as Aerospace and Defense is expected to act as a tailwind for growth in the Engine Products segment.

Donaldson anticipates Industrial Products sales to increase in the range of 5-7% compared with its earlier guidance of 4-8%, mirroring impressive performance from Industrial Filtration Solutions and Special Applications.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.

Donaldson Company, Inc. Price and Consensus

VGM Scores

At this time, DCI has a nice Growth Score of B, however its Momentum is doing a bit better with an A. 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.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.


DCI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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