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Donaldson (DCI) Q4 Earnings Match Estimates, Revenues Beat

·5 min read

Donaldson Company, Inc.’s DCI fourth-quarter fiscal 2022 (ended Jul 31, 2022) earnings matched the Zacks Consensus Estimate of 84 cents, while sales surpassed the same by 1.3%.

The bottom line improved 27.3% from the year-ago quarter’s 66 cents. Sales growth in the reported quarter was partially offset by the headwinds stemming from supply-chain constraints and higher cost of raw materials.

Revenue Results

In the fiscal fourth quarter, Donaldson’s net sales were $890 million, reflecting year-over-year growth of 15.1%. The top line surpassed the Zacks Consensus Estimate of $879 million.

Regionwise, DCI’s net sales in the United States/Canada increased 32.2% year over year. The top line expanded 14.8% in Europe, the Middle East and Africa, 34.9% in Latin America and 8.4% in the Asia Pacific.

Donaldson 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 69.7% of net sales in fourth-quarter fiscal 2022) sales were $620.3 million, reflecting year-over-year growth of 17.5%.

The results were positively impacted by 20.5% growth in Off-Road, 20.7% in Aerospace and Defense, 17.7% in Aftermarket sales and 4.6% in On-Road.

Revenues generated from Industrial Products (accounting for 30.3% of net sales in fourth-quarter fiscal 2022) were $269.7 million, increasing 10.1% from the year-ago quarter’s figure.

Results benefited from sales growth of 13.5% in Industrial Filtration Solutions and 38.5% in Gas Turbine Systems. However, sales declined 16.6% in Special Applications.

Donaldson Company, Inc. Price and Consensus

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

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

Margin Profile

In the fiscal fourth quarter, Donaldson’s cost of sales increased 17.9% year over year to $598.4 million. Gross profit jumped 9.8% to $291.6 million, while gross margin declined 160 basis points (bps) to 32.8%. The margin results were negatively impacted by higher raw material costs, partially offset by favorable pricing.

Operating expenses increased 5.6% year over year to $162.3 million. Operating profit in the quarter under review increased 15.4% to $129.3 million. Operating margin was 14.5%, flat year over year.

Effective tax rate in the quarter was 21.4% compared with 26% in the year-ago quarter.

Balance Sheet & Cash Flow

While exiting fourth-quarter fiscal 2022, Donaldson’s cash and cash equivalents were $193.3 million, down 13.2% from $222.8 million recorded in the last fiscal year’s comparable quarter. Long-term debt was up 39.8% year over year to $644.3 million.

In fiscal 2022, Donaldson repaid the long-term debt of $90 million.

In fiscal 2022, DCI generated net cash of $252.8 million from operating activities, reflecting a decrease of 37.1% from the year-ago figure. Capital expenditure (net) totaled $85.2 million compared with $58.3 million in the year-ago fiscal period. Free cash flow decreased 51.2% to $167.7 million.

In fiscal 2022, DCI used $170.6 million to repurchase shares and $110.1 million to pay out dividends.

Outlook

For fiscal 2023 (ending July 2022), Donaldson expects earnings per share of $2.91-$3.07 compared with 2022 GAAP and adjusted EPS of $2.66 and $2.68, respectively. Sales are anticipated to increase 1-5% from the fiscal 2022 level. Positive pricing is anticipated to leave an accretive impact of 6%. However, movements in foreign currencies are expected to negatively impact sales by 4%.

On a segmental basis, Engine Products sales are anticipated to increase 0-4% from the fiscal 2022 level. The segment’s performance is likely to benefit from mid-single digit growth in Aftermarket and Aerospace sales. Also, solid growth in Defense sales is anticipated to offset low-single digits declines in On-Road and Off-Road sales.

Sales growth for Industrial Products is anticipated to be 3-7% compared with the fiscal 2022 figure. The segment is likely to gain from high-single-digit growth in Industrial Filtration Solutions. Gas Turbine Systems sales are projected to be up low-single digits, while Special Applications sales are anticipated to be flat with the prior-year period’s figure.

Operating margin is expected to be 14.5-15.4% for fiscal 2023, suggesting an increase from the reported and adjusted operating margin of 13.4% and 13.5%, respectively, in fiscal 2022. Interest expenses are predicted to be $14.5-$15 million. Other income is likely to be approximately $17 million. Effective tax rate is anticipated to be 25-27%.

Capital expenditure for the fiscal year is expected to be $115-$135 million. Free cash flow conversion is anticipated to be 110-125%. Share buybacks are expected to account for 2% of outstanding shares.

Zacks Rank & Stocks to Consider

DCI currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the industrial products sector are discussed below:

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). AIT delivered a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

AIT’s earnings estimates have increased 5.8% for fiscal 2023 (ending June 2023) in the past 60 days. Its shares have rallied 4.1% in the past six months.

Greif, Inc. GEF presently has a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average.

GEF’s earnings estimates have increased 0.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 18.3% in the past six months.

Valmont Industries, Inc. VMI presently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, Valmont’s earnings estimates have increased 3.8% for 2022. The stock has rallied 26.9% in the past six months.


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