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Donaldson (DCI) Up 6.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Donaldson (DCI - Free Report) . Shares have added about 6.6% 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 catalysts.

Donaldson's Q4 Earnings Meet, Revenues Miss Estimates

Donaldsonreported in-line earnings in fourth-quarter fiscal 2018 (ended July 2018) results.

Earnings/Revenues

Quarterly adjusted earnings came in at 58 cents per share, in line with the Zacks Consensus Estimate. However, the bottom line came in 13.7% higher than the year-ago tally. The company noted that this upside was backed by benefits from the company's cost-reduction and price-realization initiatives.

Net sales in the reported quarter grew 9.8% year over year to $724.7 million. However, the top line missed the Zacks Consensus Estimate of $728 million.

Segmental Break-Up

Aggregate sales of the company's Engine Products segment came in at $492.2 million, up 14% year over year.

The Industrial Products segment's revenues inched up 1.9% year over year to $232.5 million.

Adjusted earnings for fiscal 2018 came in at $2.00 per share, climbing 18.3% year over year. The reported figure also marginally surpassed the Zacks Consensus Estimate of $1.99.

Net sales in fiscal 2018 improved 15.3% year over year to $2,734.2 million. The top line came in line with the Zacks Consensus Estimate.

Costs/Margins

The company's cost of sales in the fiscal fourth quarter rose 9.6% year over year to $472 million. Adjusted gross profit margin was 34.9%, up 10 basis points (bps) from the year-ago tally.

Aggregate operating expenses in the reported quarter were $145.9 million, higher than $135.2 million recorded in the year-ago quarter. Adjusted operating margin in the reported quarter was 14.7%, up 40 bps year over year.

Adjusted gross profit margin for fiscal 2018 was 34.2%, down 50 bps from the year-ago tally.

Adjusted operating margin for the fiscal was 13.9%, flat year over year.

Balance Sheet/Cash Flow

Exiting fiscal 2018, Donaldson had cash and cash equivalents of $204.7 million, down from $308.4 million recorded as of Jul 31, 2017. Long-term debt came in at $499.6 million, down from $537.3 million recorded at the end of the prior fiscal.

In fiscal 2018, the company generated $262.9 million cash from operating activities, as against $317.8 million cash generated in the year-earlier period. Capital expenditure totaled $95.9 million, up from $63.5 million recorded in the comparable period last fiscal.

Donaldson repurchased 0.3 million and 2.6 million shares for $14.3 million and $122 million in the fourth quarter and fiscal 2018, respectively.

Outlook

Donaldson is poised to grow on the back of increased business penetration in key end-markets, higher production capacity and advanced technological investments.

Nevertheless, ongoing geopolitical uncertainty and prevailing inflationary pressure remain two key causes of concern for the company.

The company anticipates generating adjusted earnings of $1.36-$2.00 per share in fiscal 2019. Also, aggregate sales growth for the fiscal is projected at 6-10%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.25% due to these changes.

VGM Scores

At this time, Donaldson has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Donaldson has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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