Donaldson Company, Inc. DCI seems to have lost its sheen to soft market conditions partly due to the cautious stance adopted by some customers in the event of the coronavirus outbreak. Also, weak price performance and lowered earnings estimates indicate bearish sentiments for the stock.
The Bloomington, MN-based company has a market capitalization of $5.6 billion and a Zacks Rank #4 (Sell) at present. It belongs to the Zacks Pollution Control industry, currently at the bottom 35% (with the rank of 165) of more than 250 Zacks industries.
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Notably, Donaldson’s earnings surpassed estimates by 6.4% in second-quarter fiscal 2020 (ended Jan 31, 2020). However, sales lagged estimates by 4.3% and declined 5.9% year over year due to lower volumes and forex woes.
Year to date, Donaldson's shares have dipped 33.4% compared with the industry’s decline of 27.8%. Notably, the company’s shares have lost 20.2% since the release of second-quarter results on Mar 5.
Factors Affecting Investment Appeal
Segmental Business Weak: The company recorded weak performances of its two reporting segments — Engine Products and Industrial Products — in the first half of fiscal 2020 (ended January 2020). Notably, in the last reported quarter, Engine Products’ sales were down 7.1% year over year, while that of Industrial Products decreased 3.5%.
For fiscal 2020 (ending July 2020), Donaldson predicts a 5-9% year-over-year sales decline for Engine Products. The projection is worse than a 4% decline to a 2% increase mentioned previously. Weakness is predicted for Off-Road, Aftermarket and On-Road sales, partially offset by growth in Aerospace and Defense sales.
For Industrial Products, annual sales are expected to be between a 3% decline and a 1% increase year over year as compared with an increase of 2-8% mentioned previously. Results are expected to be weak for Special Applications and Industrial Filtration Solutions businesses, while are likely to be flat for the Gas Turbine Systems business.
Projections Lackluster: Soft market conditions due to nervousness caused by the coronavirus outbreak impacted the annual projections of Donaldson. For fiscal 2020, the company now projects sales a 3-7% decline year over year, as compared with a 2% decline to 4% growth mentioned earlier.
Earnings per share are expected to be $2.05-$2.19 in the year, down from $2.21-$2.37 stated previously. The mid-point now stands at $2.12, down 7.4% from the previous mid-point of $2.29.
Forex Woes: The presence in Europe, Middle East and Africa (EMEA); the United States; the Asia Pacific and Latin America has exposed Donaldson to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. In second-quarter fiscal 2020, forex woes adversely affected the company’s sales.
For fiscal 2020, it believes that forex woes will hurt its sales by 1-2%.
Bottom-Line Estimate Trend: The Zacks Consensus Estimate for Donaldson’s earnings has been revised downward in the past 30 days. Currently, earnings estimates are pegged at $2.12 per share for fiscal 2020 and $2.31 for fiscal 2021, reflecting respecting declines of 6.2% and 7.2% from the 30-day-ago figures. Notably, there were six downward revisions in estimates for fiscal 2020 and five for fiscal 2021. No upward revision in estimates has been recorded for both years in the past 30 days.
Also, earnings estimates of 53 cents per share for third-quarter fiscal 2020 (ending April 2020) and 58 cents for fourth-quarter fiscal 2020 (ending July 2020) reflect declines of 11.7% and 13.4% from the respective 30-day-ago figures.
Donaldson Company, Inc. Price and Consensus
Donaldson Company, Inc. price-consensus-chart | Donaldson Company, Inc. Quote
Donaldson’s Performance Versus Three Industry Players
The company has underperformed three industry players year to date. While Sharps Compliance Corp. SMED has gained 16.9% so far in 2020, both Tetra Tech, Inc. TTEK and Energy Recovery, Inc. ERII declined 18.6% and 30.5%, respectively.
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