Donaldson Company, Inc. (NYSE: DCI) announced its financial results for
its fiscal 2013 fourth quarter. Summarized financial results are as
follows (dollars in millions, except per share data):
|
|
Three Months Ended
|
|
Twelve Months Ended
|
|
|
July 31
|
|
July 31
|
|
| 2013 |
| 2012 |
| Change |
| 2013 |
| 2012 |
| Change |
Net sales
|
|
$633
|
|
$657
|
|
(4)%
|
|
$2,437
|
|
$2,493
|
|
(2)%
|
Operating income
|
|
100
|
|
99
|
|
1%
|
|
343
|
|
363
|
|
(5)%
|
Net earnings
|
|
73
|
|
71
|
|
2%
|
|
247
|
|
264
|
|
(6)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$0.48
|
|
$0.47
|
|
2%
|
|
$1.64
|
|
$1.73
|
|
(5)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"While global economic conditions in many of our end markets remained
challenging, we delivered record fourth quarter net income and earnings
per share," said Bill Cook, Donaldson's CEO. "Our overall sales were
down from the fourth quarter of last year primarily due to our Engine
Products OEM businesses in the U.S. and Asia and our Industrial Products
businesses. However, we also had a number of businesses and regions that
saw year-over-year increases. Our Engine Aftermarket sales increased 3
percent from last year and have now grown sequentially for the second
straight quarter. Regionally, we achieved strong local currency sales
growth in Latin America, India, and our European Engine business in the
quarter."
"Despite our lower overall sales, we delivered higher operating income
with a record operating margin of 15.8 percent. Over the last year, we
have worked to align our manufacturing and operating expenses with
current Customer demand while generating significant savings from our
ongoing Continuous Improvement initiatives. During the quarter,
we also incurred restructuring charges of $1.2 million as part of these
alignment efforts. Due to our strong operating margin performance, we
delivered record net income and EPS in the fourth quarter."
"Looking forward, we believe that many of our end markets have now
stabilized and will begin to grow moderately during the second half of
our FY14. Overall, we are expecting our full year sales to increase
percentage-wise in the low- to mid-single digits in FY14. We plan to
maintain our operating focus on our Continuous Improvement
initiatives. We will continue to invest in our Strategic Business
Systems project during FY14. Our overall growth outlook and operational
performance is anticipated to deliver FY14 EPS of between $1.65 and
$1.85 per share."
Financial Statement Discussion
The impact of foreign currency translation decreased sales by $3.5
million, or 0.5 percent, during the quarter and decreased sales by $32.2
million, or 1.3 percent, for the year. The impact of foreign currency
translation decreased reported net earnings by $0.3 million, or 0.4
percent, during the quarter and decreased reported net earnings by $2.1
million, or 0.8 percent, for the year.
Gross margin was 36.1 percent for the quarter and 34.8 percent for the
year, compared to prior year margins of 35.0 percent for both the
quarter and the year. The improvement in the quarter is primarily
attributable to a higher percentage of our sales coming from replacement
filters and the benefits from our Continuous Improvement
initiatives. Restructuring expenses included in gross margin were $0.3
million in the quarter and $1.6 million for the year.
Operating expenses for the quarter were $128.3 million, down 1.5 percent
from last year. As a percent of sales, operating expenses were 20.3
percent compared to last year's 19.8 percent. For the year, operating
expenses were $503.8 million, or 20.7 percent of sales, compared to
$510.7 million, or 20.5 percent of sales, last year. Restructuring
expenses included in operating expenses were $0.9 million and $2.4
million for the quarter and the year, respectively. Our ongoing cost
containment actions and lower incentive compensation have helped to
offset the restructuring expenses, higher pension expenses, and the
incremental expenses related to our Strategic Business Systems project.
Our effective tax rate for the quarter was 28.2 percent, compared to a
prior year rate of 30.7 percent. The decrease in the quarter was due to
a change in the geographic mix of earnings compared to last year. For
the year, the effective tax rate was 29.0 percent compared to a prior
year rate of 28.7 percent.
As part of our ongoing share repurchase program we repurchased 1,166,000
shares, or 0.8 percent of our diluted shares outstanding, for $41.6
million during the quarter. For the year, we repurchased 2,987,000
shares, or 2.0 percent of our diluted shares outstanding, for $102.6
million.
FY14 Outlook
-
We project our Company's sales to be between $2.45 and $2.55 billion,
or an increase of 1 to 5 percent. Our forecast is based on the Euro at
US$1.32 and 97 Yen to the US$.
-
Our full-year operating margin forecast is 14.1 to 14.9 percent.
Included in this forecast is approximately $30 million in expense
increases for our Strategic Business Systems project and incentive
compensation.
-
Our FY14 tax rate is anticipated to be between 28 and 31 percent.
-
We forecast our full year FY14 EPS to be between $1.65 and $1.85.
-
Cash generated by operating activities is projected to be between $275
and $305 million. Our capital spending is estimated to be
approximately $90 million. We anticipate repurchasing between 2 and 4
percent of our diluted outstanding shares in FY14.
Engine Products: We forecast
FY14 sales to increase 1 to 7 percent, including the impact of foreign
currency.
-
Our On-Road OEM Customers are planning to increase their builds of
heavy- and medium-duty trucks in FY14, with build rates turning
positive in our first fiscal quarter. Demand from our Off-Road OEM
Customers is anticipated to be mixed: build rates of agriculture
equipment are forecasted to remain steady but the outlook is cautious,
build rates of construction equipment are expected to slowly improve
in North America but remain weak in Europe and China, and the build
rates of mining equipment are expected to continue to remain at
current low levels.
-
We are anticipating improving growth for our Aftermarket Products.
Current utilization rates for off-road equipment and on-road heavy
truck fleets in the field have stabilized and inventory levels at
dealers and distributors are now consistent with current end user
utilization rates in most markets. We should also benefit from our
continued expansion into emerging economies, the increasing number of
systems installed in the field with our innovative proprietary
filters, and our increasing sales of liquid filtration products.
-
We forecast steady sales for our Aerospace and Defense Products
compared to last year as the continued slowdown in U.S. military
activity is expected to be offset by growth from our commercial
aerospace sales.
Industrial Products: We
forecast sales to be consistent with FY13, including the impact of
foreign currency.
-
Our Industrial Filtration Solutions Products' sales are projected to
increase 5 to 11 percent. We assume general manufacturing activity
will continue to increase moderately in the Americas and has now
stabilized in Europe and Asia with gradual improvement expected in
both regions.
-
We anticipate our Gas Turbine Products' sales will decrease 18 to 24
percent from our record sales in FY13 due to the forecasted slowdown
in large turbine power generation projects by our Customers in FY14.
-
Special Applications Products' sales are forecasted to increase 5 to
11 percent due to improved market demand for our membranes and venting
products, partially offset by continued weakness in the disk drive
filter market.
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 12,600 employees contribute to the
Company's success by supporting our Customers at our more than 140
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, without limitation, forecasts, plans, trends, and projections
relating to our business and financial performance and global economic
conditions, which involve uncertainties that could materially impact
results. All statements other than statements of historical fact are
forward-looking statements. These statements do not guarantee future
performance.
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 global 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, failure or
breach of information technology and trade secret security, potential
global events resulting in market instability including financial
bailouts and defaults of sovereign nations, military and terrorist
activities, health outbreaks, natural disasters, and all of the other
risk 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
|
|
Twelve Months Ended
|
|
|
July 31
|
|
July 31
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net sales
|
|
$632,594
|
|
|
$656,833
|
|
|
$2,436,948
|
|
|
$2,493,248
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
404,238
|
|
|
427,050
|
|
|
1,589,821
|
|
|
1,619,485
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
228,356
|
|
|
229,783
|
|
|
847,127
|
|
|
873,763
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
128,343
|
|
|
130,299
|
|
|
503,798
|
|
|
510,747
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
100,013
|
|
|
99,484
|
|
|
343,329
|
|
|
363,016
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
(3,800
|
)
|
|
(5,503
|
)
|
|
(15,762
|
)
|
|
(19,253
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
2,635
|
|
|
2,633
|
|
|
10,910
|
|
|
11,489
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
101,178
|
|
|
102,354
|
|
|
348,181
|
|
|
370,780
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
28,569
|
|
|
31,373
|
|
|
100,804
|
|
|
106,479
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$72,609
|
|
|
$70,981
|
|
|
$247,377
|
|
|
$264,301
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
|
|
|
|
|
|
outstanding
|
|
147,880,382
|
|
|
149,989,485
|
|
|
148,273,904
|
|
|
150,286,403
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
149,940,905
|
|
|
152,506,028
|
|
|
150,455,193
|
|
|
152,940,605
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
$0.49
|
|
|
$0.47
|
|
|
$1.67
|
|
|
$1.76
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
|
|
|
assuming dilution
|
|
$0.48
|
|
|
$0.47
|
|
|
$1.64
|
|
|
$1.73
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$0.130
|
|
|
$0.090
|
|
|
$0.410
|
|
|
$0.320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
July 31
|
|
July 31
|
|
|
2013
|
|
2012
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and short-term investments
|
|
$323,888
|
$318,151
|
Accounts receivable, net
|
|
430,766
|
438,796
|
Inventories, net
|
|
234,820
|
256,116
|
Prepaids and other current assets
|
|
66,188
|
72,599
|
|
|
|
|
Total current assets
|
|
1,055,662
|
1,085,662
|
|
|
|
|
Other assets and deferred taxes
|
|
268,614
|
259,511
|
Property, plant, and equipment, net
|
|
419,280
|
384,909
|
|
|
|
|
Total assets
|
|
$1,743,556
|
|
$1,730,082
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$186,460
|
|
$199,182
|
Employee compensation and other liabilities
|
|
182,121
|
201,848
|
Short-term borrowings
|
|
9,190
|
95,147
|
Current maturity long-term debt
|
|
98,664
|
2,346
|
|
|
|
|
Total current liabilities
|
|
476,435
|
498,523
|
|
|
|
|
Long-term debt
|
|
102,774
|
203,483
|
Other long-term liabilities
|
|
79,160
|
118,062
|
|
|
|
|
Total liabilities
|
|
658,369
|
820,068
|
|
|
|
|
|
Equity
|
|
1,085,187
|
|
910,014
|
|
|
|
|
|
Total liabilities and equity
|
|
$1,743,556
|
|
$1,730,082
|
|
|
|
|
|
DONALDSON COMPANY, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
Twelve Months Ended
|
|
|
July 31
|
|
|
2013
|
|
2012
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net earnings
|
|
$247,377
|
|
$264,301
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
Depreciation and amortization
|
|
64,290
|
|
61,165
|
|
Changes in operating assets and liabilities
|
|
2,490
|
|
(45,609
|
)
|
Tax benefit of equity plans
|
|
(11,191
|
)
|
(10,316
|
)
|
Stock compensation plan expense
|
|
9,148
|
|
10,553
|
|
Other, net
|
|
3,809
|
|
(20,382
|
)
|
Net cash provided by operating activities
|
|
315,923
|
|
259,712
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net expenditures on property and equipment
|
|
(94,337
|
)
|
(77,170
|
)
|
Net change in short-term investments
|
|
(1,974
|
)
|
(99,298
|
)
|
Net cash used in investing activities
|
|
(96,311
|
)
|
(176,468
|
)
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
(102,572
|
)
|
(130,233
|
)
|
Net change in debt and short-term borrowings
|
|
(88,310
|
)
|
50,510
|
|
Dividends paid
|
|
(60,320
|
)
|
(47,684
|
)
|
Tax benefit of equity plans
|
|
11,191
|
|
10,316
|
|
Exercise of stock options
|
|
16,043
|
|
|
13,691
|
|
Net cash used in financing activities
|
|
(223,968
|
)
|
|
(103,400
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
2,705
|
|
|
(27,549
|
)
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(1,651
|
)
|
|
(47,705
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents – beginning of year
|
|
225,789
|
|
|
273,494
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – end of period
|
|
$224,138
|
|
|
$225,789
|
|
|
|
|
|
|
SEGMENT DETAIL
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Engine
|
|
Industrial
|
|
Corporate &
|
|
Total
|
|
|
Products
|
|
Products
|
|
Unallocated
|
|
Company
|
3 Months Ended July 31, 2013:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$396,374
|
|
$236,220
|
|
---
|
|
|
$632,594
|
Earnings before income taxes
|
|
68,763
|
|
36,399
|
|
(3,984
|
)
|
|
101,178
|
|
|
|
|
|
|
|
|
|
3 Months Ended July 31, 2012:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$398,540
|
|
$258,293
|
|
---
|
|
|
$656,833
|
Earnings before income taxes
|
|
57,509
|
|
45,561
|
|
(716
|
)
|
|
102,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months Ended July 31, 2013:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$1,504,188
|
|
$932,760
|
|
---
|
|
|
$2,436,948
|
Earnings before income taxes
|
|
220,892
|
|
139,108
|
|
(11,819
|
)
|
|
348,181
|
|
|
|
|
|
|
|
|
|
12 Months Ended July 31, 2012:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$1,570,140
|
|
$923,108
|
|
---
|
|
|
$2,493,248
|
Earnings before income taxes
|
|
227,941
|
|
149,249
|
|
(6,410
|
)
|
|
370,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES BY PRODUCT
|
(Thousands of dollars)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Twelve Months Ended
|
|
|
July 31
|
|
July 31
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Engine Products segment:
|
|
|
|
|
|
|
|
|
Off-Road Products
|
|
$90,778
|
|
$95,420
|
|
$358,834
|
|
|
$376,870
|
On-Road Products
|
|
32,239
|
|
39,800
|
|
128,446
|
|
|
163,934
|
Aftermarket Products
|
|
241,709
|
|
235,041
|
|
900,419
|
|
|
907,306
|
Retrofit Emissions Products
|
|
2,744
|
|
2,028
|
|
12,298
|
|
|
15,354
|
Aerospace and Defense Products
|
|
28,904
|
|
26,251
|
|
104,191
|
|
|
106,676
|
Total Engine Products segment
|
|
$396,374
|
|
$398,540
|
|
$1,504,188
|
|
|
$1,570,140
|
|
|
|
|
|
|
|
|
|
Industrial Products segment:
|
|
|
|
|
|
|
|
|
Industrial Filtration Solutions Products
|
|
$143,276
|
|
$151,931
|
|
$529,751
|
|
|
$553,453
|
Gas Turbine Products
|
|
50,627
|
|
57,041
|
|
232,922
|
|
|
180,669
|
Special Applications Products
|
|
42,317
|
|
49,321
|
|
170,087
|
|
|
188,986
|
Total Industrial Products segment
|
|
$236,220
|
|
$258,293
|
|
$932,760
|
|
|
$923,108
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$632,594
|
|
$656,833
|
|
$2,436,948
|
|
|
$2,493,248
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
|
(Thousands of dollars, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Twelve Months Ended
|
|
|
July 31
|
|
July 31
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$98,534
|
|
|
$77,311
|
|
|
$315,923
|
|
|
$259,712
|
|
Net capital expenditures
|
|
(24,912
|
)
|
|
(19,183
|
)
|
|
(94,337
|
)
|
|
(77,170
|
)
|
Free cash flow
|
|
$73,622
|
|
|
$58,128
|
|
|
$221,586
|
|
|
$182,542
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$72,609
|
|
|
$70,981
|
|
|
$247,377
|
|
|
$264,301
|
|
Income taxes
|
|
28,569
|
|
|
31,373
|
|
|
100,804
|
|
|
106,479
|
|
Interest expense, net
|
|
1,987
|
|
|
1,312
|
|
|
8,097
|
|
|
7,025
|
|
Depreciation and amortization
|
|
15,763
|
|
|
14,951
|
|
|
64,290
|
|
|
61,165
|
|
EBITDA
|
|
$118,928
|
|
|
$118,617
|
|
|
$420,568
|
|
|
$438,970
|
|
|
|
|
|
|
|
|
|
|
Prior year net sales
|
|
$656,833
|
|
|
$625,450
|
|
|
$2,493,248
|
|
|
$2,294,029
|
|
Change in net sales, excluding foreign currency translation
|
|
(20,710
|
)
|
|
67,664
|
|
|
(24,144
|
)
|
|
237,931
|
|
Foreign currency translation
|
|
(3,529
|
)
|
|
(36,281
|
)
|
|
(32,156
|
)
|
|
(38,712
|
)
|
Current year net sales
|
|
$632,594
|
|
|
$656,833
|
|
|
$2,436,948
|
|
|
$2,493,248
|
|
|
|
|
|
|
|
|
|
|
Prior year net earnings
|
|
$70,981
|
|
|
$65,767
|
|
|
$264,301
|
|
|
$225,291
|
|
Change in net earnings, excluding foreign currency translation
|
|
1,883
|
|
|
9,066
|
|
|
(14,815
|
)
|
|
43,016
|
|
Foreign currency translation
|
|
(255
|
)
|
|
(3,852
|
)
|
|
(2,109
|
)
|
|
(4,006
|
)
|
Current year net earnings
|
|
$72,609
|
|
|
$70,981
|
|
|
$247,377
|
|
|
$264,301
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)
|
(Thousands of dollars, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Twelve Months Ended
|
|
|
July 31
|
|
July 31
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net earnings
|
|
$72,609
|
|
$70,981
|
|
$247,377
|
|
$264,301
|
Restructuring charges, net of tax
|
|
856
|
|
-
|
|
2,954
|
|
-
|
Net earnings, excluding special items
|
|
$73,465
|
|
$70,981
|
|
$250,331
|
|
$264,301
|
|
|
|
|
|
|
|
|
|
Net earnings per share assuming dilution
|
|
$0.48
|
|
$0.47
|
|
$1.64
|
|
$1.73
|
Restructuring charges per share, net of tax
|
|
0.01
|
|
-
|
|
0.02
|
|
-
|
Net earnings per share assuming dilution, excluding special items
|
|
$0.49
|
|
$0.47
|
|
$1.66
|
|
$1.73
|
|
|
|
|
|
|
|
|
|
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
Aug 27, 2013