Donaldson Company, Inc. DCI posted adjusted earnings of 53 cents per share in third-quarter fiscal 2018, beating the Zacks Consensus Estimate by a penny.
The reported figure fared better than the prior-year quarter's tally of 45 cents, reflecting an increase of 17.8%. The bottom line was driven by impressive growth in revenues and favourable market conditions.
Inside the Headlines
Donaldson's total sales amounted to $700 million, reflecting an improvement of 15.1% on a year-over-year basis. The top line also came ahead of the Zacks Consensus Estimate of $684 million. Solid performance in the company's Engine Products and Industrial Products segments drove sales.
The Engine Products segment's sales were up 16% year over year to $472.3 million. Three of the four sub-segments under Engine Products - Off-Road, On Road and Aftermarket - recorded stellar increase in sales, leading to the company's overall strong performance. Sales in Aftermarket, On-road and Off-Road business improved 12.6%, 46.3% and 30.4%, respectively. Sales for the Aerospace and Defense business declined 10.9%, partly due to the timing within the Defense business.
Sales in the Industrial Product segment were up 12.4% year over year to $227.7 million. Within the segment, the Industrial Filtration Solutions, Gas Turbine Systems and Special Applications businesses improved 17.7%, 2.9% and 3.3%, respectively.
Donaldson Company, Inc. Price, Consensus and EPS Surprise
Donaldson Company, Inc. Price, Consensus and EPS Surprise | Donaldson Company, Inc. Quote
However, Donaldson's adjusted operating margin contracted 10 basis points (bps) year over year to 14.4%, reflecting negative impact from higher raw materials and supply chain costs, along with an adverse product mix. Meanwhile, the company's earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $123.9 million compared with $107.6 million in the prior-year quarter.
Liquidity & Cash Flow
As of Apr 30, 2018, Donaldson had cash and equivalents of $317.3 million compared with $295.9 million a year ago. The company had long-term debt of $687.5 million as on Apr 30, 2018 compared with $537.3 million as on Jul 31, 2017.
Share Repurchase Program
In the fiscal third quarter, the company returned $23.4 million to shareholders through dividends. Additionally, Donaldson repurchased shares worth $44.9 million, which represented 0.8% of its outstanding shares.
Concurrent with the earnings release, the company revised its guidance for fiscal 2018. Donaldson currently expects fiscal 2018 adjusted earnings in the range of $1.97-$2.01 per share compared with its earlier projection of $1.93-$2.01. Based on the current market scenario, the company now expects a 15% increase in fiscal sales on a year-over-year basis compared with the prior forecast of 13-15%.
Segment wise, Donaldson projects Engine Products sales to increase in the range of 18-19% compared with its earlier projection of 17-19%. Markedly, sales increase in Aftermarket, Off-Road and On-Road is expected to act as a tailwind for growth in the Engine Products segment, partially offset by declining sales in Aerospace and Defense.
Donaldson expects Industrial Products sales to increase in the range of 8-9% compared with its earlier guidance of 5-7%, mirroring impressive performance from Industrial Filtration Solutions and Special Applications.
Donaldson's Engine Products segment has been exhibiting great momentum backed by benefit from stabilization in market conditions. Overall favorable trends including effects of restocking, commodity prices, decent rig counts and stable industrial production are expected to prove conducive to the company's results in the upcoming quarters. Also, the company's strategy of winning first-fit programs, aftermarket growth, constant geographic expansion and fostering innovative technology are likely to act as growth catalysts, going ahead.
However, this Zacks Rank #3 (Hold) company is vulnerable to uncertainty related to policy changes, global economic conditions and adverse currency fluctuations as more than half of its revenues comes from outside the United States.
Stocks to Consider
A few better-ranked stocks in the same space are Applied Industrial Technologies, Inc AIT , MSA Safety Incorporated MSA and Avery Dennison Corporation AVY . While Applied Industrial Technologies and MSA Safety sport a Zacks Rank #1 (Strong Buy), Brady Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Applied Industrial Technologies has an impressive earnings surprise history, surpassing estimates in each of the trailing four quarters, with an average beat of 11.6%.
MSA Safety has a good earnings surprise history, exceeding estimates in three of the trailing four quarters, with an average beat of 16.4%.
Avery Dennison posted an earnings beat in each of the trailing four quarters, with an average positive surprise of 7%.
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