Donaldson Company, Inc. (NYSE: DCI) announced its financial results for
its fiscal 2013 first quarter. Summarized financial results are as
follows (dollars in millions, except per share data):
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
| 2012 |
|
| 2011 |
|
| Change |
Net sales
|
|
|
$589
|
|
|
$608
|
|
|
(3
|
)%
|
Operating income
|
|
|
74
|
|
|
90
|
|
|
(19
|
)%
|
Net earnings
|
|
|
54
|
|
|
69
|
|
|
(21
|
)%
|
Diluted EPS (*)
|
|
|
$0.36
|
|
|
$0.45
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
(*) The prior year EPS amounts reflect the impact of last year's
two-for-one stock split.
"Our first quarter sales and EPS were consistent with the updated
outlook we announced in late October," said Bill Cook, Chairman,
President and CEO. "While we finished FY12 very strong, we saw
conditions at many of our Customers decelerate in September and October.
Incoming orders from our Engine OEM and Disk Drive Customers decreased
as they lowered their production schedules to deal with declining end
market demand and to also reduce their inventory levels. Utilization of
on-road and off-road equipment also weakened during this period,
resulting in lower order rates for our replacement filters. Fortunately,
our Gas Turbine Products business helped offset these weaker conditions
with a 33 percent year-over-year sales increase. We expect our Gas
Turbine project shipments to continue increasing in our second and third
quarters. Finally, foreign currency translation decreased our sales by
almost 3 percent due to the stronger US dollar versus last year.
Excluding the foreign exchange impact, sales decreased less than 1
percent in the quarter."
"Our operating margin was 12.5 percent due to lower fixed cost
absorption and a mix shift to large Gas Turbine project shipments. We
were able to partially offset these with our Continuous Improvement
initiatives. Looking forward, we have initiated actions which will
better align our manufacturing and operating expenses with our expected
Customer demand."
"We see the current downturn as short-term primarily due to high levels
of global uncertainty. We expect to return to year-over-year growth in
our second quarter. A continuing benefit of our diversified portfolio of
filtration businesses around the world is that regions including Latin
America, South Africa, and Australia, and product groups like Gas
Turbine and Integrated Venting Solutions, are all projecting strong
growth. As a result, we are forecasting our Company's full-year sales to
increase 0 to 4 percent, and our FY13 EPS forecast is between $1.68 and
$1.88 per share."
Financial Statement Discussion
The impact of foreign currency translation decreased sales by $16.9
million, or 2.8 percent, during the first quarter compared to the same
period last year. The impact of foreign currency translation decreased
reported net earnings by $1.3 million, or 1.9 percent, compared to the
prior year.
Gross margin was 33.7 percent, compared to 35.3 percent in last year's
first quarter. The year-over-year decrease is primarily attributable to
lower fixed cost absorption due to the decrease in our production
volumes and the mix impact due to large Gas Turbine project shipments.
These were partially offset by the benefits from our ongoing Continuous
Improvement initiatives.
Operating expenses for the quarter were $124.8 million, approximately
even with last year's $124.6 million. As a percent of sales, operating
expenses were 21.2 percent compared to last year's 20.5 percent. Our
cost containment actions helped offset higher pension expense and
incremental expenses related to our strategic business systems projects.
Our effective tax rate for the quarter was 29.4 percent, compared to a
prior year rate of 25.5 percent. The prior year's quarter included tax
benefits primarily due to favorable settlements of tax audits of $4.3
million.
As part of our ongoing share repurchase program we repurchased 1,500,000
shares, or 1.0 percent of our diluted outstanding shares, for $50.7
million during the quarter.
FY13 Outlook
We continue to forecast full-year sales growth as strong Gas Turbine
project shipments in the next two quarters and improving demand for
replacement filters are anticipated to offset weaker demand from our
Engine OEM and Disk Drive Customers.
-
We are projecting our full-year sales to be between $2.5 and $2.6
billion, or up 0 to 4 percent over last year's record. Our forecast is
based on the Euro at US$1.27. We expect foreign currency translation
to have a negative impact on our sales for most of our fiscal year.
-
Our full-year operating margin forecast is 14.2 to 15.0 percent.
-
Our FY13 tax rate is anticipated to be between 28 and 31 percent.
-
We forecast our FY13 EPS to be between $1.68 and $1.88.
-
Cash generated by operating activities is projected to be between $235
and $265 million. Our capital spending is estimated to be
approximately $100 million.
Engine Products: We forecast
FY13 sales to be equal to FY12, including the negative impact of foreign
currency.
-
Our on-road OEM Customers are planning to build fewer heavy- and
medium-duty trucks. Demand from our off-road OEM Customers is
anticipated to be mixed: build rates of agriculture equipment are
forecasted to remain good, build rates of construction equipment are
expected to slowly improve in North America, but remain weak in Europe
and China, and build rates of mining equipment are expected to
decrease globally.
-
We are anticipating low single-digit sales growth of our Aftermarket
Products. Current utilization rates for off-road equipment and on-road
heavy trucks have softened. We should offset much of this through our
continued expansion into emerging economies, from the increasing
number of systems installed in the field with our proprietary filters,
and from our increasing sales of liquid filtration products.
-
We forecast our Aerospace and Defense Products' sales to be equal to
the prior year as the continued slowdown in military spending is
anticipated to be offset by increased commercial aerospace sales.
Industrial Products: We
forecast sales to increase 4 to 10 percent over FY12, including the
negative impact of foreign currency.
-
Our Industrial Filtration Solutions Products' sales are projected to
increase 0 to 5 percent. We assume manufacturing activity will remain
strong in the Americas, slowly improve in Asia, and continue to be
weak in Europe.
-
We anticipate our Gas Turbine Products' sales to be up 21 to 27
percent due to continued strength in both the large turbine power
generation and the oil and gas markets.
-
Special Applications Products' sales are forecast to increase 1 to 7
percent, with growth expected from membranes products and integrated
venting products.
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 approximately 13,000 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, the 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 the 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 and defaults of sovereign nations, 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
|
|
|
|
2012
|
|
|
2011
|
Net sales
|
|
|
$588,947
|
|
|
$608,295
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
390,654
|
|
|
393,361
|
|
|
|
|
|
|
|
Gross margin
|
|
|
198,293
|
|
|
214,934
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
124,756
|
|
|
124,607
|
|
|
|
|
|
|
|
Operating income
|
|
|
73,537
|
|
|
90,327
|
|
|
|
|
|
|
|
Other income, net
|
|
|
(5,812)
|
|
|
(4,860)
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,671
|
|
|
3,170
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
76,678
|
|
|
92,017
|
|
|
|
|
|
|
|
Income taxes
|
|
|
22,565
|
|
|
23,464
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$54,113
|
|
|
$68,553
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
|
|
|
|
Outstanding (*)
|
|
|
149,149,429
|
|
|
150,513,892
|
|
|
|
|
|
|
|
Diluted shares outstanding (*)
|
|
|
151,524,125
|
|
|
153,047,198
|
|
|
|
|
|
|
|
Net earnings per share (*)
|
|
|
$0.36
|
|
|
$0.46
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
|
assuming dilution (*)
|
|
|
$0.36
|
|
|
$0.45
|
|
|
|
|
|
|
|
Dividends paid per share (*)
|
|
|
$0.090
|
|
|
$0.075
|
|
|
|
|
|
|
|
(*) Prior year shares and per share amounts reflect the impact of the
Company's two-for-one stock split that occurred during the third quarter
of Fiscal 2012.
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
October 31
|
|
|
July 31
|
|
|
|
2012
|
|
|
2012
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
|
$289,010
|
|
$318,151
|
Accounts receivable – net
|
|
|
415,059
|
|
438,796
|
Inventories – net
|
|
|
272,396
|
|
256,116
|
Prepaids and other current assets
|
|
|
71,948
|
|
72,599
|
|
|
|
|
|
|
Total current assets
|
|
|
1,048,413
|
|
1,085,662
|
|
|
|
|
|
|
Other assets and deferred taxes
|
|
|
265,187
|
|
259,511
|
Property, plant and equipment – net
|
|
|
398,898
|
|
384,909
|
|
|
|
|
|
|
Total assets
|
|
|
$1,712,498
|
|
|
$1,730,082
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
$185,721
|
|
|
$199,182
|
Employee compensation and other liabilities
|
|
|
189,341
|
|
201,848
|
Short-term borrowings
|
|
|
67,506
|
|
95,147
|
Current maturity long-term debt
|
|
|
2,361
|
|
2,346
|
|
|
|
|
|
|
Total current liabilities
|
|
|
444,929
|
|
498,523
|
|
|
|
|
|
|
Long-term debt
|
|
|
202,473
|
|
203,483
|
Other long-term liabilities
|
|
|
109,914
|
|
118,062
|
|
|
|
|
|
|
Total liabilities
|
|
|
757,316
|
|
820,068
|
|
|
|
|
|
|
|
Equity
|
|
|
955,182
|
|
|
910,014
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
$1,712,498
|
|
|
$1,730,082
|
|
|
|
|
|
|
|
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
|
2012
|
|
|
2011
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$54,113
|
|
$68,553
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,026
|
|
15,574
|
Changes in operating assets and liabilities
|
|
|
1,910
|
|
(21,932)
|
Tax benefit of equity plans
|
|
|
(5,527)
|
|
(2,171)
|
Stock compensation plan expense
|
|
|
1,476
|
|
1,690
|
Other, net
|
|
|
(3,935)
|
|
(4,028)
|
Net cash provided by operating activities
|
|
|
64,063
|
|
57,686
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenditures on property and equipment
|
|
|
(21,404)
|
|
(18,491)
|
Net change in short-term investments
|
|
|
12,868
|
|
-
|
Net cash used in investing activities
|
|
|
(8,536)
|
|
(18,491)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(50,731)
|
|
(73,558)
|
Net change in debt and short-term borrowings
|
|
|
(28,703)
|
|
78,763
|
Dividends paid
|
|
|
(13,292)
|
|
(11,193)
|
Tax benefit of equity plans
|
|
|
5,527
|
|
2,171
|
Exercise of stock options
|
|
|
5,576
|
|
|
2,961
|
Net cash used in financing activities
|
|
|
(81,623)
|
|
|
(856)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
5,077
|
|
|
(9,620)
|
|
|
|
|
|
|
|
Increase/(Decrease) in cash and cash equivalents
|
|
|
(21,019)
|
|
|
28,719
|
|
|
|
|
|
|
|
Cash and cash equivalents – beginning of year
|
|
|
225,789
|
|
|
273,494
|
|
|
|
|
|
|
|
Cash and cash equivalents – end of period
|
|
|
$204,770
|
|
|
$302,213
|
|
|
|
|
|
|
|
|
SEGMENT DETAIL
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine
|
|
|
Industrial
|
|
|
Corporate &
|
|
|
Total
|
|
|
Products
|
|
|
Products
|
|
|
Unallocated
|
|
|
Company
|
3 Months Ended October 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$370,660
|
|
|
$218,287
|
|
|
---
|
|
|
$588,947
|
Earnings before income taxes
|
|
47,424
|
|
|
32,562
|
|
|
(3,308)
|
|
|
76,678
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES BY PRODUCT
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
October 31
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
Engine Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
Off-Road Products
|
|
|
|
|
|
|
|
$90,997
|
|
|
$94,108
|
On-Road Products
|
|
|
|
|
|
|
|
34,756
|
|
|
42,625
|
Aftermarket Products
|
|
|
|
|
|
|
|
218,396
|
|
|
226,897
|
Retrofit Emissions Products
|
|
|
|
|
|
|
|
2,897
|
|
|
4,637
|
Aerospace and Defense Products
|
|
|
|
|
|
|
|
23,614
|
|
|
25,458
|
Total Engine Products segment
|
|
|
|
|
|
|
|
$370,660
|
|
|
$393,725
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Filtration Solutions Products
|
|
|
|
|
|
|
|
$128,576
|
|
|
$133,399
|
Gas Turbine Products
|
|
|
|
|
|
|
|
47,243
|
|
|
35,581
|
Special Applications Products
|
|
|
|
|
|
|
|
42,468
|
|
|
45,590
|
Total Industrial Products segment
|
|
|
|
|
|
|
|
$218,287
|
|
|
$214,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
|
|
|
|
|
|
$588,947
|
|
|
$608,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
|
(Thousands of dollars, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
October 31
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
Net cash provided by
|
|
|
$64,063
|
|
|
$57,686
|
operating activities
|
|
|
|
|
|
|
Net capital expenditures
|
|
|
(21,404)
|
|
|
(18,491)
|
Free cash flow
|
|
|
$42,659
|
|
|
$39,195
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$54,113
|
|
|
$68,553
|
Income taxes
|
|
|
22,565
|
|
|
23,464
|
Interest expense (net)
|
|
|
1,754
|
|
|
2,371
|
Depreciation and amortization
|
|
|
16,026
|
|
|
15,574
|
EBITDA
|
|
|
$94,458
|
|
|
$109,962
|
|
|
|
|
|
|
|
Prior year net sales
|
|
|
$608,295
|
|
|
$536,909
|
Change in net sales, excluding foreign currency translation
|
|
|
(2,489)
|
|
|
57,966
|
Foreign currency translation
|
|
|
(16,859)
|
|
|
13,420
|
Current year net sales
|
|
|
$588,947
|
|
|
$608,295
|
|
|
|
|
|
|
|
Prior year net earnings
|
|
|
$68,553
|
|
|
$53,134
|
Change in net earnings, excluding foreign currency translation
|
|
|
(13,119)
|
|
|
14,088
|
Foreign currency translation
|
|
|
(1,321)
|
|
|
1,331
|
Current year net earnings
|
|
|
$54,113
|
|
|
$68,553
|
|
|
|
|
|
|
|
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.
Donaldson Company, Inc.
Rich Sheffer, 952-887-3753
Nov 21, 2012