Press Release Details

View all Press Releases

DONALDSON COMPANY REPORTS RECORD THIRD QUARTER RESULTS

25 May, 2005
FOR IMMEDIATE RELEASE:
Wednesday, May 25, 2005

FOR FURTHER INFORMATION:
Rich Sheffer (952) 887-3753


Operating profit up 13 percent on 11 percent sales increase; reaffirming outlook for 16th consecutive year of record earnings

MINNEAPOLIS, May 25, 2005 -- Donaldson Company, Inc. (NYSE: DCI) announced record third quarter diluted earnings per share ("EPS") of $.36, up from $.33 last year. Net income was a record $31.3 million, versus $29.6 million last year. Sales were a record $411.7 million, up from $370.6 million in fiscal 2004.

For the nine-month period, diluted EPS was another record at $.98, up from $.89 last year. Net income was a record $85.4 million, versus $80.1 million last year. Sales were a record $1.173 billion, up from $1.031 billion in the prior year.

"Donaldson delivered a solid third quarter, posting all-time sales, earnings and EPS records," said Bill Cook, President and Chief Executive Officer. "Our continued cost reduction efforts helped our gross margin rebound back to historical levels. Gas turbine's weak third quarter sales caused their operating expenses to be a higher-than-normal percent of sales, but we expect them to come back in-line with a stronger fourth quarter. Sarbanes-Oxley compliance costs and start-up costs at our new disk drive filter plant in Thailand also contributed to higher operating expenses. As we look forward to the fourth quarter, incoming orders remain strong, and we are confident of delivering our 16th consecutive year of record earnings in fiscal 2005."

Income Statement Discussion

Stronger foreign currencies contributed to the increase in third quarter and year-to-date sales. Translated at constant exchange rates, sales increased 8.7 percent during the quarter and 10.8 percent year-to-date. The impact of foreign currency translation increased net earnings by $0.5 million in the third quarter and $1.9 million year-to-date.

Gross margin of 32.5 percent for the third quarter and 31.7 percent year- to-date compares to prior year margins of 32.4 percent and 32.0 percent, respectively. Third quarter operating expenses were 22.1 percent of sales, down from 22.2 percent in the prior year. Year-to-date operating expenses were 21.8 percent of sales, down from 22.1 percent last year.

Third quarter interest expense was $2.5 million, up from $1.3 million last year. The increase was driven by additional debt and higher short-term interest rates. Year-to-date interest expense was $6.7 million, up from $3.7 million last year. Other income decreased to $1.0 million in the quarter from $1.3 million last year on lower joint venture income. Year-to-date other income was $6.3 million, up from $2.7 million last year.

The effective tax rate was 24.6 percent in the third quarter versus 27.0 percent during the first six months. During the quarter, we filed an amended tax return related to a prior year, which resulted in additional R&D tax credits, thus lowering the tax rate for the quarter.

During the quarter, we repurchased 763,700 shares for $24.3 million as part of our on-going share repurchase plan. Year-to-date, we have repurchased 3,763,700 shares, or 4.4 percent of outstanding shares, for $116.3 million.

Backlog

Incoming orders grew 8 percent in the quarter over last year. Total backlog is strong, setting a new third quarter record at $414 million, up 8 percent relative to last year. Our 90-day backlog is $230 million, level relative to last year.

Engine Products Segment

Engine Products sales were a record $243.2 million in the quarter, an increase of 11 percent from last year. Year-to-date Engine Products sales were a record $680.2 million, an increase of 15 percent from last year.

Truck product sales in the quarter totaled $45.6 million, up 9 percent from last year. NAFTA truck sales increased 16 percent due to growing new truck build rates. European truck product sales increased 32 percent on stronger build rates and increased market share. Truck product sales in Asia decreased 21 percent as emission sales had spiked in Japan last year ahead of new emissions regulations. Year-to-date worldwide truck product sales totaled $129.8 million, an increase of 11 percent from last year.

Worldwide sales of off-road products in the quarter were $79.3 million, up 14 percent from last year. NAFTA sales increased 10 percent on continued strength in new construction, agriculture and mining equipment demand. European off-road sales increased 21 percent while Asian sales increased 18 percent. Year-to-date worldwide sales totaled $211.8 million, up 18 percent from last year.

Engine aftermarket sales in the quarter were $118.3 million, an increase of 10 percent from last year. NAFTA aftermarket sales increased 7 percent as equipment utilization rates continued to improve and sales of diesel emission retrofit equipment continued ramping up. European sales increased 14 percent and Asian sales were up 7 percent. Year-to-date worldwide aftermarket sales were $338.5 million, up 15 percent from the prior year.

Industrial Products Segment

Industrial Products sales in the quarter were a record $168.5 million, an increase of 11 percent from last year. Year-to-date Industrial Products sales were a record $492.8 million, an increase of 12 percent from last year.

Industrial Filtration Solutions ("IFS") sales in the quarter were a record $105.8 million, an increase of 16 percent from last year. IFS sales were strong in NAFTA and Europe as sales increased 25 and 11 percent, respectively. Asian sales were even with last year. Year-to-date worldwide IFS sales totaled a record $311.3 million, up 17 percent from last year.

Gas turbine product sales in the quarter were $28.0 million, down 9 percent from last year. Year-to-date worldwide sales totaled $81.6 million, down 7 percent from fiscal 2004. Our gas turbine 90-day backlog was up 10 percent compared to last year, consistent with our forecast of stronger fourth-quarter sales.

Sales of special application products in the quarter were a record $34.6 million, an increase of 19 percent from last year. Year-to-date worldwide special application sales were a record $99.9 million, up 16 percent from last year.

Outlook

Engine Products: We expect low-teens sales growth in fiscal 2005.

  • NAFTA heavy-duty new truck build rates should remain at their current high levels as truck manufacturers are near capacity. The negative comparison from last year's emissions spike in Japan will abate in the fourth quarter.
  • Off-road sales are expected to remain strong worldwide with robust conditions continuing in the production of new construction, agriculture and mining equipment.
  • Both NAFTA and international aftermarket sales are expected to continue growing as increasing equipment utilization spurs replacement filter sales.

Industrial Products: We expect improving conditions for our Industrial Products businesses to also generate low-teens sales growth in fiscal 2005.

  • Globally, we expect full-year gas turbine sales to match last year's total. Backlogs indicate a strong finish.
  • IFS sales are expected to remain strong in the fourth quarter. Our American and European markets continue to improve with stronger order levels.
  • Market conditions for special applications products continue to be stronger than last year.

"We remain optimistic on overall business conditions in our markets," said Bill Cook. "We expect to finish fiscal 2005 on a high note, with gross margin back to historical levels. We are confident of delivering another earnings record this year -- our 16th consecutive record -- and beginning fiscal 2006 on solid footing."

About Donaldson Company, Inc.

Donaldson is a leading worldwide provider of filtration systems and replacement parts. Donaldson is a technology-driven company committed to satisfying customer needs for filtration solutions through innovative research and development. Donaldson serves customers in the industrial and diesel engine markets including in-plant air cleaning, compressed air and gas purification, power generation, disk drive filtration, off-road equipment and trucks. Our 10,000 employees contribute to the company's success at over 30 manufacturing locations around the world. Donaldson is a member of the S&P MidCap 400 Index and Donaldson shares are traded on the NYSE under the symbol DCI. Additional company information is available at http://www.donaldson.com .

SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995

The company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Act") and is making this cautionary statement in connection with such safe harbor legislation. This earnings release, the Annual Report to Shareholders, any Form 10-K, 10-Q or Form 8-K of the company or any other written or oral statements made by or on behalf of the company may include forward-looking statements, forecasts and projections which reflect the company's current views with respect to future events and financial performance but involve uncertainties that could significantly impact results. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "outlook," "plan," "promises," "project," "should," "will be" and similar expressions are intended to identify "forward- looking statements" within the meaning of the Act.

The company wishes to caution investors that any forward-looking statements are subject to uncertainties and other risk factors that could cause actual results to differ materially from such statements, including but not limited to risks associated with: currency fluctuations, commodity prices, world economic factors, political factors, the company's substantial international operations, including production facilities in China, highly competitive markets, changes in capital spending levels by customers, changes in product demand, cancellations of orders, litigation, integration of acquisitions, facility and product line rationalization, research and development expenditures, including ongoing information technology improvements, and governmental laws and regulations, including diesel emissions controls. For a more detailed explanation, see the company's 2004 Form 10-K filed with the Securities and Exchange Commission. The company wishes to caution investors that new factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only to the company's views as of the date the statement is made. The company undertakes no obligation to publicly update or revise any forward-looking statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES
                CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
          (Thousands of dollars, except share and per share amounts)
                                 (Unaudited)
                              Three Months Ended        Nine Months Ended
                                   April 30                 April 30
                              2005         2004         2005         2004
     Net sales             $411,664     $370,588   $1,172,994   $1,031,018
     Cost of sales          277,743      250,353      801,388      700,770
     Gross margin           133,921      120,235      371,606      330,248
     Operating expenses      90,867       82,210      255,450      227,603
     Gain on sale of Ome
      land and building           -            -            -       (5,616)
     Operating income        43,054       38,025      116,156      108,261
     Other income, net         (996)      (1,285)      (6,281)      (2,697)
     Interest expense         2,470        1,272        6,734        3,666
     Earnings before income
      taxes                  41,580       38,038      115,703      107,292
     Income taxes            10,247        8,467       30,260       27,166
     Net earnings           $31,333      $29,571      $85,443      $80,126
     Weighted average
      shares
      outstanding        84,768,788   87,975,804   85,132,531   88,073,242
     Diluted shares
      outstanding        87,103,018   90,317,143   87,465,208   90,479,908
     Net earnings per
      share                    $.37         $.34        $1.00         $.91
     Net earnings per
      share assuming
      dilution                 $.36         $.33         $.98         $.89
     Dividends paid
      per share               $.060        $.055        $.175        $.150
                   DONALDSON COMPANY, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Thousands of dollars)
                                 (Unaudited)
                                                     April 30        July 31
                                                       2005            2004
     ASSETS
       Cash and cash equivalents                     $146,214        $99,504
       Accounts receivable - net                      292,174        274,120
       Inventories - net                              162,591        143,418
       Prepaid expenses and other current assets       44,123         40,338
         Total current assets                         645,102        557,380
       Other assets and deferred taxes                220,061        182,700
       Property, plant and equipment - net            277,819        261,529
         Total assets                              $1,142,982     $1,001,609
     LIABILITIES AND SHAREHOLDERS' EQUITY
       Trade accounts payable                        $136,496       $124,401
       Employee compensation and other liabilities     98,321         87,385
       Notes payable                                  111,420         19,736
       Income taxes payable                            15,103          9,656
       Current maturity long-term debt                 31,233         34,346
         Total current liabilities                    392,573        275,524
       Long-term debt                                 104,167         70,856
       Other long-term liabilities                    110,042        105,936
         Total liabilities                            606,782        452,316
       Equity                                         536,200        549,293
         Total liabilities and equity              $1,142,982     $1,001,609



DONALDSON COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) (Unaudited) Nine Months Ended April 30 2005 2004 OPERATING ACTIVITIES Net earnings $85,443 $80,126 Adjustments to reconcile net earnings to net cash provided by operating activities: Gain on sale of Ome land and building - (5,616) Depreciation and amortization 33,494 30,944 Changes in operating assets and liabilities (2,390) (25,740) Other, net (20,621) (7,155) Net cash provided by operating activities 95,926 72,559 INVESTING ACTIVITIES Net expenditures on property and equipment (34,435) (36,560) Acquisitions and investments in unconsolidated affiliates, net of cash acquired (13,236) (4,397) Net cash used in investing activities (47,671) (40,957) FINANCING ACTIVITIES Purchase of treasury stock (116,268) (22,160) Net change in debt 120,486 25,756 Dividends paid (14,775) (13,027) Other, net 1,875 3,078 Net cash used in financing activities (8,682) (6,353) Effect of exchange rate changes on cash 7,137 2,116 Increase in cash and cash equivalents 46,710 27,365 Cash and cash equivalents - beginning of year 99,504 67,070 Cash and cash equivalents - end of period $146,214 $94,435
SEGMENT DETAIL (Thousands of dollars) (Unaudited) Engine Industrial Corporate & Total Products Products Unallocated Company 3 Months Ended April 30, 2005: Net sales $243,212 $168,452 --- $411,664 Earnings before income taxes 37,669 14,392 (10,481) 41,580 3 Months Ended April 30, 2004: Net sales $219,297 $151,291 --- $370,588 Earnings before income taxes 34,045 11,034 (7,041) 38,038 9 Months Ended April 30, 2005: Net sales $680,229 $492,765 --- $1,172,994 Earnings before income taxes 95,926 37,994 (18,217) 115,703 9 Months Ended April 30, 2004: Net sales $590,454 $440,564 --- $1,031,018 Earnings before income taxes 81,623 31,674 (6,005) 107,292


NET SALES BY PRODUCT (Thousands of dollars) (Unaudited) Three Months Ended Nine Months Ended April 30 April 30 2005 2004 2005 2004 Engine Products segment: Off-road products $79,316 $69,536 $211,849 $179,190 Transportation products 45,572 41,820 129,847 117,209 Aftermarket products 118,324 107,941 338,533 294,055 Total Engine Products Segment $243,212 $219,297 $680,229 $590,454 Industrial Products segment: Industrial filtration solutions products $105,824 $91,458 $311,258 $266,734 Gas turbine products 27,995 30,612 81,623 87,847 Special applications products 34,633 29,221 99,884 85,983 Total Industrial Products segment $168,452 $151,291 $492,765 $440,564 Total Company $411,664 $370,588 $1,172,994 $1,031,018


RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Thousands of dollars) (Unaudited) Three Months Ended Nine Months Ended April 30 April 30 2005 2004 2005 2004 Free cash flow $18,836 $17,282 $61,491 $35,999 Net capital expenditures 11,914 9,259 34,435 36,560 Net cash provided by operating activities $30,750 $26,541 $95,926 $72,559 EBITDA $54,976 $49,081 $154,118 $141,110 Income taxes (10,247) (8,467) (30,260) (27,166) Interest expense (net) (1,911) (988) (4,921) (2,874) Depreciation and amortization (11,485) (10,055) (33,494) (30,944) Net earnings $31,333 $29,571 $85,443 $80,126 Net sales, excluding foreign currency translation $402,774 $351,162 $1,142,253 $970,492 Foreign currency translation 8,890 19,426 30,741 60,526 Net sales $411,664 $370,588 $1,172,994 $1,031,018 Net earnings, excluding foreign currency translation $30,824 $28,642 $83,571 $76,075 Foreign currency translation 509 929 1,872 4,051 Net earnings $31,333 $29,571 $85,443 $80,126

Although free cash flow, EBITDA, net sales excluding foreign currency translation and net earnings excluding foreign currency translation are not measures of financial performance under GAAP, the company believes they are useful in understanding its financial results. Free cash flow is a commonly used measure of a company's ability to generate cash in excess of its operating needs. EBITDA is a commonly used measure of operating earnings less non-cash expenses. Both net sales and net earnings excluding foreign currency translation provide a comparable measure for understanding the operating results of the company's foreign entities excluding the impact of foreign exchange. A shortcoming of these financial measures is that they do not reflect the company's actual results under GAAP. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

SOURCE Donaldson Company, Inc.

Rich Sheffer of Donaldson Company, Inc., +1-952-887-3753

Categories: Press Releases
View all Press Releases
Investor Relations  >  Home  >  Press Releases  >  Press Release Details