Donaldson (DCI) Exhibits Strong Prospects Despite Headwinds
Donaldson Company, Inc. DCI is benefiting from its presence in diverse end markets, including construction, mining, aerospace, defense, and food & beverage. Also, a strong product portfolio, solid demand and a focus on innovation are other tailwinds for DCI.
Mobile Solutions’ sales are driven by growth in On-Road and Off-Road sales, supported by elevated levels of medium and heavy-duty equipment production. Aftermarket sales are benefiting from improved global supply-chain conditions. Sales growth in industrial filtration solutions and aerospace and defense is aiding Industrial Solutions sales.
The company’s acquisition of Isolere Bio (February 2023) enabled it to create leading separation and filtration solutions for emerging genetic-based drugs. Also, the buyout of Purilogics, LLC (June 2022) strengthened DCI’s life sciences portfolio by leveraging the acquired entity’s unique product offerings. The acquisition of Solaris Biotechnology (in November 2021) strengthened its presence across several end markets, including food and beverage, biopharma and other major life sciences. Also, DCI acquired Pearson Arnold Industrial Services in the same month. Acquired assets are strengthening DCI’s top line.
DCI’s efforts to reward its shareholders through dividend payments and share repurchases are noteworthy. Donaldson paid out dividends worth $110.1 million and repurchased shares worth $170.6 million during fiscal 2022 (ended July 2022). In the first six months of fiscal 2023 (ended Jan 31, 2023), its dividend payments totaled $56.2 million. The company bought back shares worth $115.2 million in the same period. The board also announced a 4.5% hike in its quarterly dividend rate in May 2022.
However, Donaldson’s Life Sciences Segment is experiencing weakness due to continued disk drive market weakness. For fiscal 2023, management anticipates sales in the Life Sciences Segment to decline 5-9%. Supply-chain issues are added concerns for the company. High costs of raw materials, labor and freight are also weighing on Donaldson. For fiscal 2023, the company expects continued pressures from the high costs of raw materials, freight and labor.
Given DCI’s global presence, it is exposed to various environmental laws and regulations in the countries it operates. Also, Donaldson remains vulnerable to foreign currency and geopolitical issues. In second-quarter fiscal 2023, foreign currency translation had a negative impact of 4.3% on sales. The company anticipates foreign exchange headwinds to have an adverse impact of approximately 4% on its sales in fiscal 2023 (ending July 2023).
In the past six months, this current Zacks Rank #3 (Hold) stock has gained 23.2% compared with the industry’s rise of 4.7%.
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