13 percent sales increase and strong operating margin deliver
record EPS of $0.90
Donaldson Company, Inc. (NYSE: DCI) announced its financial results for
its fiscal 2012 first quarter. Summarized financial results are as
follows (dollars in millions, except per share data):
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
| 2011 |
|
| 2010 |
|
| Change |
Net sales
|
|
|
$
|
608
|
|
|
$
|
537
|
|
|
13
|
%
|
Operating income
|
|
|
|
90
|
|
|
|
75
|
|
|
21
|
%
|
Net earnings
|
|
|
|
69
|
|
|
|
53
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
$
|
0.90
|
|
|
$
|
0.68
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"We are very pleased to start our new fiscal year with another record
performance," said Bill Cook, Chairman, President and CEO. "Sales in our
Engine Products segment increased 18 percent as new equipment build
rates at our Off-Road and On-Road OEM Customers remained robust, while
continued high equipment utilization rates kept our Aftermarket
Products' sales at record levels. Within our Industrial Products'
segment, demand for our Torit® dust collectors remained
strong."
"Our operating margin performance was very good at 14.8 percent, another
record. Our ongoing Continuous Improvement initiatives are
helping us offset higher raw material costs compared to a year ago. In
addition, we continue to leverage our fixed cost base as our sales grow."
"While we had a strong start to our new fiscal year, recent public
forecasts for global economic growth rates have been reduced.
Fortunately, our order trends remain healthy so we are retaining our
original sales guidance of 7 to 15 percent growth in FY12. Of course, we
will monitor business conditions at our Customers and will proactively
adjust our plans if necessary. We continue to execute the Strategic
Growth Plan we launched a year ago and are pleased to re-confirm our
forecast of another sales record in FY12. Based on our strong 1st
quarter performance and current outlook, we have increased our FY12 EPS
projection to be between $3.25 and $3.50, which would be a new record."
Financial Statement Discussion
The impact of foreign currency translation increased sales by $13.4
million, or 2.5 percent, during the first quarter compared to the same
period last year. The impact of foreign currency translation increased
reported net earnings by $1.3 million, or 2.5 percent, during the first
quarter compared to the prior year.
Gross margin was 35.3 percent, compared to 35.0 percent in last year's
first quarter. The increase came from our ongoing Continuous
Improvement initiatives and selective price increases, which were
partially offset by increases in our purchased raw material costs and a
less favorable sales mix.
Operating expenses for the quarter were $124.6 million, or 20.5 percent
of sales, versus $113.6 million, or 21.2 percent of sales, last year.
The effective tax rate for the quarter was 25.5 percent, compared to a
prior year rate of 26.2 percent. Both the current and prior year's
quarter included tax benefits primarily due to favorable settlements of
tax audits of $4.3 million and $2.7 million, respectively.
As part of our ongoing share repurchase program we repurchased 1,376,000
shares, or 1.8 percent of our diluted outstanding shares, for $73.6
million during the quarter.
FY12 Outlook
We are re-confirming our FY12 sales forecast of between $2.45 and $2.60
billion, or up about 7 to 15 percent from the prior year. Our current
forecast is based on the Euro at US$1.39 and 78 Yen to the US$, which,
in aggregate, is slightly less favorable than our original guidance
issued in August.
-
Our full year operating margin is forecast to be 13.7 to 14.5 percent.
Our annual stock option expense is estimated to be between $7.0 and
$9.0 million with approximately 50 percent of that incurred in our
second quarter.
-
Our full year FY12 tax rate is anticipated to be between 27 and 30
percent.
-
Our full year FY12 EPS projection has been increased to be between
$3.25 and $3.50.
-
Cash generated by operating activities is projected to be between $260
and $290 million in FY12. Capital spending is estimated to be
approximately $100 million.
Engine Products: We expect
full year sales to increase 8 to 15 percent, including the impact of
foreign currency translation.
-
We anticipate sales to both our On-Road and Off-Road OEM Customers
will grow at a moderate rate in FY12. We will also continue to benefit
from increased market share on our Customers' new Tier IV equipment
platforms.
-
Sales of our Aftermarket Products are expected to remain strong based
on current utilization rates for both off-road equipment and on-road
heavy trucks. We should also benefit from our continued expansion into
the emerging economies and from the increasing number of systems
installed in the field with our proprietary filtration systems such as
PowerCore®.
-
We forecast Aerospace and Defense Products sales to be level with the
prior year as the continued slowdown in military spending is
anticipated to be offset by increased commercial aerospace sales.
Industrial Products: We
forecast full year sales to increase 7 to 15 percent, including the
impact of foreign currency translation.
-
Our Industrial Filtration Solutions' sales are projected to increase 7
to 14 percent and assume a continuing improvement in general
manufacturing activity.
-
We anticipate our Gas Turbine Products' sales to be up 18 to 25
percent due to the recent strengthening in the large turbine power
generation market and ongoing strength in the oil and gas market
segment.
-
Special Applications Products' sales are forecast to decrease 1 to 7
percent as the recent flood in Thailand is expected to temporarily
reduce demand for our disk drive filters.
About Donaldson Company
Donaldson is a leading worldwide provider of filtration systems that
improve people's lives, enhance our Customers' equipment performance,
and protect our environment. We are a technology-driven Company
committed to satisfying our Customers' needs for filtration solutions
through innovative research and development, application expertise, and
global presence. Our 12,900 employees contribute to the Company's
success by supporting our Customers at our more than 100 sales,
manufacturing, and distribution locations around the world.
Donaldson is a member of the S&P MidCap 400 and Russell 1000 indices,
and our shares trade on the NYSE under the symbol DCI. Additional
information is available at 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 announcement contains forward-looking statements,
including forecasts, plans, and projections relating to our business and
financial performance and global economic conditions, which involve
uncertainties that could materially impact results.
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: world economic
factors and the ongoing economic uncertainty, reduced demand for hard
disk drive products with the increased use of flash memory, the
potential for some Customers to increase their reliance on their own
filtration capabilities, currency fluctuations, commodity prices,
political factors, the Company's international operations, highly
competitive markets, governmental laws and regulations including the
impact of various economic stimulus and financial reform measures, the
implementation of our new information technology systems, potential
global events resulting in market instability including financial
bailouts of sovereign nations, political changes, military and terrorist
activities, health outbreaks, natural disasters, and other factors
included in our Annual and Quarterly Reports. We undertake no obligation
to publicly update or revise any forward-looking statements.
|
|
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
(Thousands of dollars, except share and per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
October 31
|
|
|
|
|
2011
|
|
|
2010
|
Net sales
|
|
|
|
$
|
608,295
|
|
|
|
$
|
536,909
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
393,361
|
|
|
|
|
348,819
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
214,934
|
|
|
|
|
188,090
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
124,607
|
|
|
|
|
113,587
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
90,327
|
|
|
|
|
74,503
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
(4,860
|
)
|
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
3,170
|
|
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
|
|
92,017
|
|
|
|
|
71,957
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
23,464
|
|
|
|
|
18,823
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
$
|
68,553
|
|
|
|
$
|
53,134
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
|
|
|
|
|
outstanding
|
|
|
|
|
75,256,946
|
|
|
|
|
77,169,260
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
|
|
76,523,599
|
|
|
|
|
78,484,455
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
$
|
0.91
|
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
|
|
assuming dilution
|
|
|
|
$
|
0.90
|
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
|
|
$
|
0.150
|
|
|
|
$
|
0.125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
October 31
|
|
|
July 31
|
|
|
|
2011
|
|
|
2011
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
302,213
|
|
$
|
273,494
|
Accounts receivable – net
|
|
|
|
439,571
|
|
|
445,700
|
Inventories – net
|
|
|
|
274,172
|
|
|
271,476
|
Prepaids and other current assets
|
|
|
|
74,795
|
|
|
75,912
|
|
|
|
|
|
|
Total current assets
|
|
|
|
1,090,751
|
|
|
1,066,582
|
|
|
|
|
|
|
Other assets and deferred taxes
|
|
|
|
271,314
|
|
|
268,009
|
Property, plant and equipment – net
|
|
|
|
384,106
|
|
|
391,502
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
1,746,171
|
|
|
$
|
1,726,093
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
$
|
203,445
|
|
|
$
|
215,918
|
Employee compensation and other liabilities
|
|
|
|
200,921
|
|
|
219,326
|
Notes payable
|
|
|
|
92,132
|
|
|
13,129
|
Current maturity long-term debt
|
|
|
|
47,536
|
|
|
47,871
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
544,034
|
|
|
496,244
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
204,881
|
|
|
205,748
|
Other long-term liabilities
|
|
|
|
109,061
|
|
|
89,390
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
857,976
|
|
|
791,382
|
|
|
|
|
|
|
|
Equity
|
|
|
|
888,195
|
|
|
|
934,711
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$
|
1,746,171
|
|
|
$
|
1,726,093
|
|
|
|
|
|
|
|
|
|
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
68,553
|
|
|
|
$
|
53,134
|
|
Adjustments to reconcile net earnings to net cash
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
15,574
|
|
|
|
|
14,918
|
|
Changes in operating assets and liabilities
|
|
|
|
(21,932
|
)
|
|
|
|
1,220
|
|
Tax benefit of equity plans
|
|
|
|
(2,171
|
)
|
|
|
|
(2,933
|
)
|
Stock compensation plan expense
|
|
|
|
1,690
|
|
|
|
|
1,461
|
|
Other, net
|
|
|
|
(4,028
|
)
|
|
|
|
(5,037
|
)
|
Net cash provided by operating activities
|
|
|
|
57,686
|
|
|
|
|
62,763
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenditures on property and equipment
|
|
|
|
(18,491
|
)
|
|
|
|
(10,048
|
)
|
Net cash used in investing activities
|
|
|
|
(18,491
|
)
|
|
|
|
(10,048
|
)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
(73,558
|
)
|
|
|
|
(6,491
|
)
|
Net change in debt
|
|
|
|
78,763
|
|
|
|
|
(17,191
|
)
|
Dividends paid
|
|
|
|
(11,193
|
)
|
|
|
|
(9,553
|
)
|
Tax benefit of equity plans
|
|
|
|
2,171
|
|
|
|
|
2,933
|
|
Exercise of stock options
|
|
|
|
2,961
|
|
|
|
|
3,950
|
|
Net cash used in financing activities
|
|
|
|
(856
|
)
|
|
|
|
(26,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
(9,620
|
)
|
|
|
|
9,238
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
|
28,719
|
|
|
|
|
35,601
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – beginning of year
|
|
|
|
273,494
|
|
|
|
|
232,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – end of period
|
|
|
$
|
302,213
|
|
|
|
$
|
267,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT DETAIL
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine
|
|
|
Industrial
|
|
|
Corporate &
|
|
|
Total
|
|
|
|
Products
|
|
|
Products
|
|
|
Unallocated
|
|
|
Company
|
3 Months Ended October 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
393,725
|
|
|
$
|
214,570
|
|
|
|
---
|
|
|
|
$
|
608,295
|
Earnings before income taxes
|
|
|
|
59,878
|
|
|
|
34,299
|
|
|
|
(2,160
|
)
|
|
|
|
92,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended October 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
333,769
|
|
|
$
|
203,140
|
|
|
|
---
|
|
|
|
$
|
536,909
|
Earnings before income taxes
|
|
|
|
48,451
|
|
|
|
30,035
|
|
|
|
(6,529
|
)
|
|
|
|
71,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES BY PRODUCT
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
October 31
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
Engine Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Road Products
|
|
|
|
|
|
|
|
|
$
|
94,108
|
|
|
|
$
|
72,646
|
Aerospace and Defense Products
|
|
|
|
|
|
|
|
|
|
25,458
|
|
|
|
|
26,854
|
On-Road Products
|
|
|
|
|
|
|
|
|
|
42,625
|
|
|
|
|
29,055
|
Aftermarket Products
|
|
|
|
|
|
|
|
|
|
226,897
|
|
|
|
|
201,867
|
Retrofit Emissions Products
|
|
|
|
|
|
|
|
|
|
4,637
|
|
|
|
|
3,347
|
Total Engine Products segment
|
|
|
|
|
|
|
|
|
$
|
393,725
|
|
|
|
$
|
333,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Filtration Solutions Products
|
|
|
|
|
|
|
|
|
$
|
133,399
|
|
|
|
$
|
119,353
|
Gas Turbine Products
|
|
|
|
|
|
|
|
|
|
35,581
|
|
|
|
|
35,505
|
Special Applications Products
|
|
|
|
|
|
|
|
|
|
45,590
|
|
|
|
|
48,282
|
Total Industrial Products segment
|
|
|
|
|
|
|
|
|
$
|
214,570
|
|
|
|
$
|
203,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
|
|
|
|
|
|
|
$
|
608,295
|
|
|
|
$
|
536,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
|
(Thousands of dollars, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
$
|
39,195
|
|
|
|
$
|
52,715
|
|
Net capital expenditures
|
|
|
|
18,491
|
|
|
|
|
10,048
|
|
Net cash provided by operating activities
|
|
|
$
|
57,686
|
|
|
|
$
|
62,763
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
$
|
109,962
|
|
|
|
$
|
90,008
|
|
Income taxes
|
|
|
|
(23,464
|
)
|
|
|
|
(18,823
|
)
|
Interest expense (net)
|
|
|
|
(2,371
|
)
|
|
|
|
(3,133
|
)
|
Depreciation and amortization
|
|
|
|
(15,574
|
)
|
|
|
|
(14,918
|
)
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
68,553
|
|
|
|
$
|
53,134
|
|
|
|
|
|
|
|
|
Net sales, excluding foreign currency translation
|
|
|
$
|
594,875
|
|
|
|
$
|
540,636
|
|
Foreign currency translation
|
|
|
|
13,420
|
|
|
|
|
(3,727
|
)
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
608,295
|
|
|
|
$
|
536,909
|
|
|
|
|
|
|
|
|
Net earnings, excluding foreign currency translation
|
|
|
$
|
67,222
|
|
|
|
$
|
53,015
|
|
Foreign currency translation
|
|
|
|
1,331
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
68,553
|
|
|
|
$
|
53,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)
|
(Thousands of dollars, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
October 31
|
|
|
|
|
2011
|
|
|
2010
|
Net earnings, excluding
|
|
|
|
|
|
|
|
|
|
|
special items
|
|
|
|
$
|
68,553
|
|
|
$
|
53,700
|
|
Restructuring charges,
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
|
|
---
|
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
$
|
68,553
|
|
|
$
|
53,134
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
|
|
|
|
|
assuming dilution,
|
|
|
|
|
|
|
|
|
|
|
excluding special items
|
|
|
|
$
|
0.90
|
|
|
$
|
0.69
|
|
Restructuring charges per
|
|
|
|
|
|
|
|
|
|
|
share, net of tax
|
|
|
|
|
---
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
|
|
|
|
|
assuming dilution
|
|
|
|
$
|
0.90
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
Although free cash flow, EBITDA, net sales excluding foreign currency
translation, net earnings excluding foreign currency translation, net
earnings excluding restructuring charges and net earnings per share
assuming dilution excluding restructuring charges 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. Both net earnings excluding
restructuring charges and earnings per share excluding restructuring
charges provide a comparable measure for understanding the results of
the Company as compared to prior periods. 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.
Donaldson Company, Inc.
Rich Sheffer, 952-887-3753
Nov 17, 2011