Donaldson (DCI) Q4 Earnings Meet Estimates, Sales Dip Y/Y
Donaldson Company, Inc.’s DCI fourth-quarter fiscal 2023 (ended Jul 31, 2023) earnings of 78 cents per share met the Zacks Consensus Estimate, while sales missed the same by 1.9%.
The bottom line declined 7.1% from the year-ago quarter’s 84 cents per share.
Sales Results
In the fiscal fourth quarter, Donaldson’s net sales reached $879.5 million, reflecting year-over-year decline of 1.2%. In the reported quarter, sales decreased due to volume declines in Mobile Solutions and Life Sciences segments. The top line missed the Zacks Consensus Estimate of $896 million.
Region-wise, DCI’s net sales in the United States/Canada decreased 2% year over year. The same decreased 12.6% in Latin America and 6.9% in the Asia Pacific. However, the top line expanded 7.3% in Europe, the Middle East and Africa.
Donaldson started reporting sales under three segments starting the fiscal second quarter of 2023. The segments are as follows: Mobile Solutions, Industrial Solutions and Life Sciences.
A brief snapshot of the segmental sales is provided below:
The Mobile Solutions segment’s (accounting for 61.7% of net sales in fourth-quarter fiscal 2023) sales were $542.5 million, reflecting a year-over-year decline of 4.8%.
The results were negatively impacted by 0.4% decline in Off-Road and 6.7% decline in aftermarket sales. However, On-Road increased 5.5% in the quarter.
Sales generated from the Industrial Solutions segment (accounting for 31.5% of net sales in fourth-quarter fiscal 2023) were $277.1 million, increasing 9.9% from the year-ago fiscal quarter.
The results benefited from sales growth of 10.8% in Industrial Filtration Solutions and 4.3% in Aerospace and Defense.
Sales generated from Life Sciences (accounting for 6.8% of net sales in fourth-quarter fiscal 2023) were $59.9 million, decreasing 11.9% from the year-ago fiscal quarter.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
Donaldson Company, Inc. price-consensus-eps-surprise-chart | Donaldson Company, Inc. Quote
Margin Profile
In the fiscal fourth quarter, Donaldson’s cost of sales increased 3.2% year over year to $579.4 million. Gross profit jumped 2.9% to $300.1 million. The gross margin increased 130 basis points (bps) to 34.1%. The margin results benefited from pricing benefits and the stabilization of input costs.
Operating expenses increased 10.6% year over year to $179.6 million. Operating profit in the quarter under review decreased 6.8% to $120.5 million. The operating margin was 13.7%, decreasing 80 bps year over year.
The effective tax rate in the quarter was 21.7% compared with 21.4% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting fourth-quarter fiscal 2023, Donaldson’s cash and cash equivalents were $187.1 million compared with $193.3 million recorded in the fourth quarter of fiscal 2022. Long-term debt was down 22.9% year over year to $496.6 million.
In fiscal 2023, Donaldson repaid its long-term debt of $219.6 million.
In the same time period, DCI generated net cash of $544.5 million from operating activities, reflecting an increase of 115.4% from the year-ago figure. Capital expenditure (net) totaled $118.1 million compared with $85.1 million in the year-ago fiscal period. Free cash flow increased 154% to $426.3 million.
DCI also used $141.8 million to repurchase treasury stocks and $114.4 million to pay out dividends during fiscal 2023.
2024 Outlook
For fiscal 2024 (ending July 2024), Donaldson expects earnings per share to be $3.14-$3.30. The company anticipates adjusted earnings to be $2.90-$3.04 per share. The Zacks Consensus Estimate for earnings is $3.16 per share. Sales are anticipated to increase 3-7% from the fiscal 2023 level. Positive pricing is anticipated to have an accretive impact of 2%. However, movement in foreign currencies is expected to negatively impact sales by 1%.
On a segmental basis, Mobile Solutions’ sales are anticipated to increase 1-5% from the fiscal 2023 level. The segment’s performance is likely to benefit from mid-single-digit growth in the aftermarket. On-road and off-road sales are both expected to be up in low-single digit, respectively.
Sales growth for Industrial Solutions is anticipated to be 3-7% from the fiscal 2023 figure. The segment is likely to gain from mid-single-digit growth in Industrial Filtration Solutions and low-single digits growth in Aerospace and Defense.
The company expects its Life Sciences segment’s sales to increase approximately 20%.
Interest expenses are predicted to be approximately $25 million. The effective tax rate is anticipated to be 24-26%.
Capital expenditure for the fiscal year is expected to be $95-$115 million. Free cash flow conversion is anticipated to be 95-105%. Share buybacks are expected to account for 2% of the outstanding shares.
Zacks Rank & Stocks to Consider
Donaldson currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:
Caterpillar Inc. CAT presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.
CAT’s earnings surprise in the last four quarters was 18.5%, on average. In the past 60 days, estimates for Caterpillar’s earnings have increased 11% for 2023. The stock has gained 49.8% in the past year.
A. O. Smith Corp. AOS presently carries a Zacks Rank #2 (Buy). AOS’ earnings surprise in the last four quarters was 10.5%, on average.
In the past 60 days, estimates for A. O. Smith’s earnings have increased 2.9% for 2023. The stock has gained 25.1% in the past year.
Alamo Group Inc. ALG presently carries a Zacks Rank of 2. ALG’s earnings surprise in the last four quarters was 13%, on average.
In the past 60 days, estimates for Alamo’s 2023 earnings have increased 1.1%. The stock has gained 30.1% in the past year.
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Donaldson Company, Inc. (DCI) : Free Stock Analysis Report
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