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Donaldson Company, Inc. (DCI - Free Report) has reported better-than-expected results for third-quarter fiscal 2020 (ended Apr 30, 2020), with earnings beating estimates by 31.6%. Also, sales surpassed estimates by 3.9%.
The company’s adjusted earnings in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 38 cents. However, the bottom line decreased 13.8% from the year-ago quarter’s figure of 58 cents due to sales weakness caused by the pandemic and a fall in margins.
Top-Line Results
In the fiscal third quarter, Donaldson’s net sales were $629.7 million, reflecting a year-over-year decline of 11.7%. The results suffered from a 9.7% fall in organic sales due mainly to the adverse impacts of the pandemic. Forex woes too had a negative impact of 2%.
However, the top line surpassed the Zacks Consensus Estimate of $606.3 million.
On a geographical basis, the company’s net sales in the United States decreased 12% year over year. Results also suffered from a 12.5% decline in Europe, Middle East and Africa’s sales, and an 8.1% dip in the Asia Pacific’s sales. Sales in Latin America declined 15.8% year over year.
The company reports revenues under the following segments — Engine Products and Industrial Products. A brief snapshot of the segmental sales is provided below:
Engine Products’ (accounting for 66.8% of net sales in third-quarter fiscal 2020) sales were $420.4 million, reflecting a year-over-year decline of 14.1%.
The results were adversely impacted by a 25.1% fall in Off-Road, 46.5% in On-Road and 7.9% in Aftermarket sales. Also, the company recorded a 0.3% fall in Aerospace and Defense sales.
Revenues generated from Industrial Products (accounting for 33.2% of net sales in third-quarter fiscal 2020) were $209.3 million, decreasing 6.3% from the year-ago quarter.
Results suffered from a sales decline of 11.5% in Industrial Filtration Solutions, partially offset by a 6.2% rise in Gas Turbine Systems and a 4.9% increase in Special Applications’ sales.
Margin Profile
In the reported quarter, Donaldson’s cost of sales decreased 10.9% year over year to $420.5 million. It represented 66.8% of net sales versus 66.2% in the year-ago quarter. Adjusted gross margin in the quarter was 33.2%, down 60 basis points (bps) year over year. Lower sales were a setback in the quarter, partially offset by pricing, procurement, production and supply-chain measures as well as reduced raw material costs and favorable sales mix.
Operating expenses dipped 11.3% year over year to $124.7 million. It represented 19.8% of net sales versus 19.7% in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.4%, down 50 bps year over year. Adjusted effective tax rate in the quarter was 24.9% as compared with 24.5% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting third-quarter fiscal 2020, Donaldson’s cash and cash equivalents were $326.5 million, up 54.7% from $211.1 million recorded in the last reported quarter. Long-term debt was up 23.4% sequentially to $735.1 million.
In the first three quarters of fiscal 2020, the company repaid the long-term debt of $111.1 million, while raised $262.7 million from long-term debts.
In the first three quarters of fiscal 2020, Donaldson generated net cash of $265.2 million from operating activities, reflecting an increase of 18.8% from the year-ago figure. Capital expenditure totaled $106.2 million versus $112.4 million in the year-ago quarter. Free cash flow in the reported quarter increased 43.5% year over year to $159 million.
In the first three quarters, the company used $94.3 million for repurchasing shares and $79.8 million for paying out dividends.
Outlook
Donaldson is wary about the uncertainties caused by the coronavirus outbreak. It kept its financial projections suspended for fiscal 2020 (ending July 2020) and fiscal 2021 (ending July 2021). Notably, estimates were withdrawn in April.
However, the company noted that share buybacks for the year will be 1.6% of outstanding shares. Capital expenditure will likely be lower, while liquidity will be solid. Sales in May will likely be down 24% year over year.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
In the past 60 days, earnings estimates for Silgan Holdings and Graphic Packaging improved for the current year, while have been unchanged for Broadwind Energy. Further, earnings surprise for the last reported quarter was 16.33% for Silgan Holdings, 200% for Broadwind Energy and 24% for Graphic Packaging.
5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
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Donaldson (DCI) Q3 Earnings Beat Estimates, Decline Y/Y
Donaldson Company, Inc. (DCI - Free Report) has reported better-than-expected results for third-quarter fiscal 2020 (ended Apr 30, 2020), with earnings beating estimates by 31.6%. Also, sales surpassed estimates by 3.9%.
The company’s adjusted earnings in the reported quarter were 50 cents per share, surpassing the Zacks Consensus Estimate of 38 cents. However, the bottom line decreased 13.8% from the year-ago quarter’s figure of 58 cents due to sales weakness caused by the pandemic and a fall in margins.
Top-Line Results
In the fiscal third quarter, Donaldson’s net sales were $629.7 million, reflecting a year-over-year decline of 11.7%. The results suffered from a 9.7% fall in organic sales due mainly to the adverse impacts of the pandemic. Forex woes too had a negative impact of 2%.
However, the top line surpassed the Zacks Consensus Estimate of $606.3 million.
On a geographical basis, the company’s net sales in the United States decreased 12% year over year. Results also suffered from a 12.5% decline in Europe, Middle East and Africa’s sales, and an 8.1% dip in the Asia Pacific’s sales. Sales in Latin America declined 15.8% year over year.
The company reports revenues under the following segments — Engine Products and Industrial Products. A brief snapshot of the segmental sales is provided below:
Engine Products’ (accounting for 66.8% of net sales in third-quarter fiscal 2020) sales were $420.4 million, reflecting a year-over-year decline of 14.1%.
The results were adversely impacted by a 25.1% fall in Off-Road, 46.5% in On-Road and 7.9% in Aftermarket sales. Also, the company recorded a 0.3% fall in Aerospace and Defense sales.
Revenues generated from Industrial Products (accounting for 33.2% of net sales in third-quarter fiscal 2020) were $209.3 million, decreasing 6.3% from the year-ago quarter.
Results suffered from a sales decline of 11.5% in Industrial Filtration Solutions, partially offset by a 6.2% rise in Gas Turbine Systems and a 4.9% increase in Special Applications’ sales.
Margin Profile
In the reported quarter, Donaldson’s cost of sales decreased 10.9% year over year to $420.5 million. It represented 66.8% of net sales versus 66.2% in the year-ago quarter. Adjusted gross margin in the quarter was 33.2%, down 60 basis points (bps) year over year. Lower sales were a setback in the quarter, partially offset by pricing, procurement, production and supply-chain measures as well as reduced raw material costs and favorable sales mix.
Operating expenses dipped 11.3% year over year to $124.7 million. It represented 19.8% of net sales versus 19.7% in the year-ago quarter. Adjusted operating margin in the quarter under review was 13.4%, down 50 bps year over year. Adjusted effective tax rate in the quarter was 24.9% as compared with 24.5% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting third-quarter fiscal 2020, Donaldson’s cash and cash equivalents were $326.5 million, up 54.7% from $211.1 million recorded in the last reported quarter. Long-term debt was up 23.4% sequentially to $735.1 million.
In the first three quarters of fiscal 2020, the company repaid the long-term debt of $111.1 million, while raised $262.7 million from long-term debts.
In the first three quarters of fiscal 2020, Donaldson generated net cash of $265.2 million from operating activities, reflecting an increase of 18.8% from the year-ago figure. Capital expenditure totaled $106.2 million versus $112.4 million in the year-ago quarter. Free cash flow in the reported quarter increased 43.5% year over year to $159 million.
In the first three quarters, the company used $94.3 million for repurchasing shares and $79.8 million for paying out dividends.
Outlook
Donaldson is wary about the uncertainties caused by the coronavirus outbreak. It kept its financial projections suspended for fiscal 2020 (ending July 2020) and fiscal 2021 (ending July 2021). Notably, estimates were withdrawn in April.
However, the company noted that share buybacks for the year will be 1.6% of outstanding shares. Capital expenditure will likely be lower, while liquidity will be solid. Sales in May will likely be down 24% year over year.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
Donaldson Company, Inc. price-consensus-eps-surprise-chart | Donaldson Company, Inc. Quote
Zacks Rank & Stocks to Consider
With a market capitalization of $6.1 billion, Donaldson currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Zacks Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and Graphic Packaging Holding Company (GPK - Free Report) . While Silgan currently sports a Zacks Rank #1 (Strong Buy), both Broadwind Energy and Graphic Packaging carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for Silgan Holdings and Graphic Packaging improved for the current year, while have been unchanged for Broadwind Energy. Further, earnings surprise for the last reported quarter was 16.33% for Silgan Holdings, 200% for Broadwind Energy and 24% for Graphic Packaging.
5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
See the 5 high-tech stocks now>>