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Donaldson (DCI) Q1 Earnings & Revenues Surpass Estimates

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Donaldson Company, Inc.’s DCI first-quarter fiscal 2022 (ended Oct 31, 2021) earnings and sales surpassed the Zacks Consensus Estimate by 10.9% and 2.4%, respectively.

The company’s earnings in the reported quarter were 61 cents per share, beating the Zacks Consensus Estimate of 55 cents. The bottom line improved 27.1% from the year-ago quarter’s 48 cents. Sales growth in the reported quarter more than offset the headwinds stemming from supply-chain constraints and higher cost of raw material.

Revenue Results

In the fiscal first quarter, Donaldson’s net sales were $760.9 million, reflecting year-over-year growth of 19.5%. The top line surpassed the Zacks Consensus Estimate of $743 million.

Region-wise, the company’s net sales in the United States/Canada increased 19.8% year over year. Likewise, the top line expanded 19.6% in Europe, the Middle East and Africa, 13.6% in the Asia Pacific and 33.5% in Latin America.

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 69.3% of net sales in first-quarter fiscal 2022) sales were $527.2 million, reflecting year-over-year growth of 20.9%.

The results were positively impacted by growth of 44.9% in Off-Road, 22.9% in Aerospace and Defense and 18.1% in Aftermarket sales. However, sales declined 1.4% in On-Road.

Revenues generated from Industrial Products (accounting for 30.7% of net sales in first-quarter fiscal 2022) were $233.7 million, increasing 16.6% from the year-ago quarter.

Results benefited from sales growth of 22% in Industrial Filtration Solutions and 23.3% in Special Applications, partially offset by a decline of 27.8% in Gas Turbine Systems.

Donaldson Company, Inc. Price, Consensus and EPS Surprise

Donaldson Company, Inc. Price, Consensus and EPS Surprise
Donaldson Company, Inc. Price, Consensus and EPS Surprise

Donaldson Company, Inc. price-consensus-eps-surprise-chart | Donaldson Company, Inc. Quote

Margin Profile

In the reported quarter, Donaldson’s cost of sales increased 21.7% year over year to $503.9 million. It represented 66.2% of net sales compared with 65% in the year-ago quarter. Gross profit increased 15.4% to $257 million, while gross margin declined 120 basis points (bps) to 33.8%. The margin results were negatively impacted by higher raw material costs, labor and freight, partially offset by volume growth and favorable pricing.

Operating expenses increased 10.4% year over year to $149.5 million. It represented 19.7% of net sales compared with 21.3% in the year-ago quarter. Operating profit in the quarter under review increased 23.2% to $107.5 million. Operating margin was 14.1%, up 40 bps year over year.

Effective tax rate in the reported quarter was 25.9% compared with 24.7% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting first-quarter fiscal 2022, Donaldson’s cash and cash equivalents were $200.8 million, down 9.9% from $222.8 million recorded in the last reported quarter. Long-term debt was up 18.9% sequentially to $548.1 million.

In the first three months of fiscal 2022, the company repaid the long-term debt of $35 million.

In the reported quarter, it generated net cash of $42.9 million from operating activities, reflecting a decrease of 66.7% from the year-ago figure. Capital expenditure totaled $18.3 million compared with $18.8 million in the year-ago quarter. Free cash flow in the reported quarter decreased 77.7% to $24.6 million.

In the first three months of fiscal 2022, the company used $102.9 million for repurchasing shares and $27.4 million for paying out dividends.

Outlook

For fiscal 2022 (ending July 2022), Donaldson anticipates benefiting from solid demand for its products. However, supply-chain challenges weigh on the company.

It expects earnings per share of $2.57-$2.73 compared with $2.50-$2.66 predicted earlier. Sales are anticipated to increase 8-12% year over year compared with 5-10% guided previously. Movements in foreign currencies are expected to have a nominal impact on sales.

On a segmental basis, Engine Products sales are anticipated to increase 8-12% year over year. The segment’s performance is likely to benefit from growth in Off-Road and Aftermarket sales. Also, growth in Aerospace and Defense sales is anticipated. However, supply chain issues are expected to have a negative impact on On-Road sales.

Sales growth for Industrial Products is anticipated to be 7-11% year over year. The segment is likely to gain from growth in Industrial Filtration Solutions, Gas Turbine Systems and Special Applications.

Operating margin is expected to be 14.1-14.7% for fiscal 2022. Interest expenses are predicted to be $14 million. Other income is likely to be $7-$11 million. Effective tax rate is anticipated to be 24-26%.

Capital expenditure for the fiscal year is expected to be $90-$110 million. Free cash flow conversion is anticipated to be 70-80%. Share buybacks will account for 2% of outstanding shares.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked companies in the industry are discussed below.

Casella Waste Systems, Inc. CWST presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 42.11%, on average.

Casella Waste’s earnings estimates have increased 6% for 2021 and 4.8% for 2022 in the past 30 days. Its shares have gained 13.1% in the past three months.

Heritage-Crystal Clean, Inc HCCI presently carries a Zacks Rank #1. Its earnings surprise for the last four quarters was 62.29%, on average.

Heritage-Crystal’s earnings estimates have been stable for 2021 and 2022 in the past 30 days. Its shares have gained 10% in the past three months.

Energy Recovery, Inc. ERII presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 123.33%, on average.

In the past 30 days, Energy Recovery’s earnings estimates have increased 18.2% for 2021 and 39.3% for 2022. Its shares have lost 10.3% in the past three months.


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Donaldson Company, Inc. (DCI) : Free Stock Analysis Report

Casella Waste Systems, Inc. (CWST) : Free Stock Analysis Report

Energy Recovery, Inc. (ERII) : Free Stock Analysis Report

HeritageCrystal Clean, Inc. (HCCI) : Free Stock Analysis Report

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