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Donaldson (DCI) Q1 Earnings and Revenues Surpass Estimates

Donaldson Company, Inc.’s DCI first-quarter fiscal 2023 (ended Oct 31, 2022) earnings beat the Zacks Consensus Estimate by 7.1% and sales surpassed the same by 2.8%.

The bottom line improved 23% from the year-ago fiscal quarter’s 61 cents. The sales growth in the reported quarter was partially offset by the headwinds related to supply-chain constraints and higher cost of raw materials.

Revenue Results

In the fiscal first quarter, Donaldson’s net sales reached $847.3 million, reflecting year-over-year growth of 11.4%. The top line surpassed the Zacks Consensus Estimate of $824 million.

Region-wise, DCI’s net sales in the United States/Canada increased 24.8% year over year. The top line expanded 0.9% in Europe, the Middle East and Africa and 31.9% in Latin America. However, the same decreased 8% 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 71.3% of net sales in first-quarter fiscal 2023) sales were $604.5 million, reflecting year-over-year growth of 14.7%.

The results were positively impacted by 15% growth in Off-Road, 22% in Aerospace and Defense, 14.1% in Aftermarket sales and 14.4% in On-Road.

Revenues generated from Industrial Products (accounting for 28.7% of net sales in first-quarter fiscal 2023) were $242.8 million, increasing 3.9% from the year-ago fiscal quarter.

The results benefited from sales growth of 9.3% in Industrial Filtration Solutions and 53.3% in Gas Turbine Systems. However, sales declined 29.3% 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 first quarter, Donaldson’s cost of sales increased 11.2% year over year to $560.1 million. Gross profit jumped 11.8% to $287.2 million, while the gross margin increased 10 basis points (bps) to 33.9%. The margin results benefited from favorable pricing, partially offset by higher raw material costs.

Operating expenses increased 12.3% year over year to $167.9 million. Operating profit in the quarter under review increased 11% to $119.3 million. The operating margin was 14.1%, flat year over year.

The effective tax rate in the quarter was 25.2%, compared with 25.9% in the year-ago quarter.

Balance Sheet & Cash Flow

While exiting first-quarter fiscal 2023, Donaldson’s cash and cash equivalents were $161 million, down 16.7% from $193.3 million recorded in the last fiscal year’s comparable quarter. Long-term debt was down 6.8% year over year to $600.7 million.

In the first three months of fiscal 2023, Donaldson repaid its long-term debt of $40 million.

In the same time period, DCI generated net cash of $118.2 million from operating activities, reflecting an increase of 175.6% from the year-ago figure. Capital expenditure (net) totaled $28.1 million compared with $18.3 million in the year-ago fiscal period. Free cash flow increased 266.3% to $90.1 million.

DCI also used $45.7 million to repurchase shares and $28.2 million to pay out dividends during the first three months of fiscal 2023.

Outlook

For fiscal 2023 (ending July 2023), 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 have an accretive impact of 6%. However, movement in foreign currencies are expected to negatively impact sales by 5%.

On a segmental basis, Engine Products sales are anticipated to increase 1-5% from the fiscal 2022 level compared with 0-4% predicted earlier. The segment’s performance is likely to benefit from mid-single-digit growth in aftermarket, and aerospace & defense sales. On-road and off-road sales are expected to be flat in the fiscal year against the low single-digits decline predicted earlier.

Sales growth for Industrial Products is anticipated to be 1-5%from the fiscal 2022 figure, compared with 3-7% predicted earlier. 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 decline in the mid-teens digit compared with the prior-year period’s figure.

Adjusted operating margin is expected to be 14.5-15.1% 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 approximately $18 million compared with $14.5-$15 million expected earlier. The fffective 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 the outstanding shares.

Zacks Rank and Other Key Picks

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 has a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 24.8%, on average. You can see the complete list of today’s Zacks #1  Rank stocks.

AIT’s earnings estimates have increased 4.6% for fiscal 2023 (ending June 2023) in the past 60 days. Shares of Applied Industrial have risen 28% in the past six months.

IDEX Corporation IEX presently has a Zacks Rank of #2 (Buy). IEX’s earnings surprise in the last four quarters was 5.7%, on average.

In the past 60 days, IDEX’s earnings estimates have increased 1.8% for 2022. The stock has rallied 24.1% in the past six months.

EnerSys ENS delivered an average four-quarter earnings surprise of 2.1%. ENS presently carries a Zacks Rank of 2.

ENS’ earnings estimates have increased 0.6% for fiscal 2023 (ending March 2023) in the past 60 days. The stock has gained 12.4% in the past six months.

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

Enersys (ENS) : Free Stock Analysis Report

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