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Donaldson (DCI) Q4 Earnings Match Estimates, Revenues Beat

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Donaldson Company, Inc.’s DCI fourth-quarter fiscal 2021 (ended Jul 31, 2021) earnings came in line with the Zacks Consensus Estimate, while sales surpassed the same by 0.5%.

The company’s earnings in the reported quarter was 66 cents per share, matching the Zacks Consensus Estimate. The bottom line improved 32% from the year-ago quarter’s 50 cents. Sales growth in the reported quarter more than offset the headwinds stemming from supply-chain constraints, higher cost of raw material and unfavorable sales mix.

For fiscal 2021, the company’s earnings were $2.32, reflecting an increase of 16% on a year-over-year basis.

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

Revenue Results

In the fiscal fourth quarter, Donaldson’s net sales were $773.1 million, reflecting year-over-year growth of 25.2%. The top line surpassed the Zacks Consensus Estimate of $769 million.

On a geographical basis, the company’s net sales in the United States/Canada increased 17.5% year over year. Likewise, the top-line results expanded 28.9% in Europe, Middle East and Africa’s sales, 24.5% in the Asia Pacific, and 51.7% in Latin America.

For fiscal 2021, net sales were $2,853.9 million, up 10.5% year over year.

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 68.3% of net sales in fourth-quarter fiscal 2021) sales were $528.1 million, reflecting year-over-year growth of 28.1%.

The results were positively impacted by growth of 57.8% in Off-Road, 35.5% in On-Road and 25.5% in Aftermarket sales. However, sales declined 7.7% in Aerospace and Defense.

Revenues generated from Industrial Products (accounting for 31.7% of net sales in fourth-quarter fiscal 2021) were $245 million, increasing 19.5% from the year-ago quarter.

Results benefited from sales growth of 23.5% in Industrial Filtration Solutions and 27% in Special Applications, partially offset by a decline of 11.4% in Gas Turbine Systems.

Margin Profile

In the reported quarter, Donaldson’s cost of sales increased 23.9% year over year to $507.4 million. It represented 65.6% of net sales compared with 66.3% in the year-ago quarter. Adjusted gross profit increased 27.8% year over year to $265.7 million, while adjusted gross margin grew 70 basis points (bps) to 34.4%. The margin results gained from volume growth and favorable pricing, offset by unfavorable sales mix and higher raw material costs.

Adjusted operating expenses increased 22.6% year over year to $153.7 million. It represented 19.9% of net sales compared with 20.3% in the year-ago quarter. Adjusted operating profit in the quarter under review increased 35.8% year over year to $112 million. Adjusted operating margin was 14.5%, up 110 bps year over year.

Effective tax rate in the reported quarter was 26% as compared with 21.1% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting fourth-quarter fiscal 2021, Donaldson’s cash and cash equivalents were $222.8 million, up 3.5% from $215.3 million recorded in the last reported quarter. Long-term debt was up 1.4% sequentially to $461 million.

In fiscal 2021, the company repaid the long-term debt of $170.4 million.

In the reported quarter, it generated net cash of $96.3 million from operating activities, reflecting a decrease of 20.9% from the year-ago figure. Capital expenditure totaled $18 million compared with $16.3 million in the year-ago quarter. Free cash flow in the reported quarter decreased 25.9% year over year to $78.2 million.

In fiscal 2021, the company used $142.2 million for repurchasing shares and $107.2 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 remain concerns.

It expects earnings per share of $2.50-$2.66, while sales are anticipated to increase 5-10% year over year. Movements in foreign currencies are anticipated to have no material impact on sales.

On a segmental basis, sales are anticipated to increase 5-10% year over year for Engine Products in the year. The segment’s performance is likely to benefit from growth in On-Road, Off-Road and Aftermarket sales. Also, growth in sales for Aerospace and Defense is anticipated.

Sales growth for Industrial Products is anticipated to be 6-11% year over year. The segment is likely to gain from growth in Industrial Filtration Solutions and Gas Turbine Systems, partially offset by weakness in 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 $100-$120 million. Cash flow conversion is anticipated to be 80-90%. Share buybacks will account for 2% of outstanding shares.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are AZZ Inc. AZZ, Energy Recovery, Inc. ERII and Fuel Tech, Inc. FTEK. While AZZ currently sports a Zacks Rank #1 (Strong Buy), Energy Recovery and Fuel Tech carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AZZ has a trailing four-quarter earnings surprise of 21.24%, on average..

Energy Recovery has a trailing four-quarter earnings surprise of 150.83%, on average.

Fuel Tech has a trailing four-quarter earnings surprise of 101.67%%, on average.


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