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Donaldson Q2 Earnings, Revenues Miss; Guidance Adjusted

Highs and Lows Stock Data

Donaldson Company, Inc. DCI broke its recent earnings streak as it reported its second-quarter fiscal 2016 results. The company reported adjusted earnings per share of 29 cents for the quarter, lagging the Zacks Consensus Estimate of 33 cents by 12.1%.

Adjusted earnings also compared unfavourably to the prior-year quarter figure of 36 cents, reflecting a significant 24.1% year-over-year decrease.

The decline in the bottom line was largely attributable to bleak performance across the company's segments, led largely by macroeconomic factors and currency fluctuations.

Inside the Headlines

Donaldson reported total sales of $517.2 million, recording a 12.1% year-over-year decrease. Also, revenues lagged the Zacks Consensus Estimate of $534 million. The company's Gas Turbine Systems business was the biggest drag on the top line.

Both the company's segments - Engines Products and Industrial Products - contributed to the lacklustre top-line performance during the second quarter of fiscal 2016. Moreover, currency fluctuations continued to exert pressure and dampened revenue growth by $26.3 million or 4.5%.

Revenues in the Engine Products segment declined 10.1% year over year to $320.9 million. Three of the four sub-segments under Engine Products - Off-Road, Aftermarket and Aerospace & Defense - recorded declines, which led to the weak overall performance. The decline was compounded by foreign currency fluctuations during the quarter. While sluggishness in the mining, oil & gas, and agricultural equipment markets led to a decline in Aftermarket sales (down 9.3%), weakness in global agriculture, Asia-Pacific region's construction and global mining markets caused Off-Road products (down 17.4%) sales to fall. Strong growth in North America contributed to the standout performance in On-Road products (up 5.9%). However, Aerospace & Defense (down 15.3%) sales suffered due to continued decline in the U.S. defense spending.

Revenues in the Industrial Product segment were down 15.1% year over year to $196.3 million. For this segment too, all three sub-segments, namely, Gas Turbine Products, Industrial Filtration Solutions and Special Applications, fared poorly, especially Gas Turbine Products, which aggravated the fall. Macroeconomic headwinds like slowdown in the oil & gas market and economic uncertainty in the Middle East, coupled with project deferrals and unstable global demand were responsible for the dismal performance of Gas Turbine Products (down 40.8%). Similarly, Industrial Filtration Solutions sales (down 7.5%) and sales of Special Applications (down 5.7%) remained weak.

Donaldson's adjusted operating margin declined 130 basis points (bps) year over year to 10.7%. Also, the company's Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") came in at $73 million versus $88.4 million recorded in the comparable quarter a year ago.

Liquidity

Donaldson exited the quarter with cash and equivalents of $222.1 million versus $189.9 million as on Jul 31, 2015. The company had long-term debt of $389.0 million on Jan 31, 2016 compared with $389.2 million as on Jul 31, 2015.

Guidance Cut

Based on the current market scenario, Donaldson has narrowed its guidance range and adjusted the estimates for fiscal 2016. The company now expects revenues to lie in a range of $2.2-$2.25 billion (compared with the prior projection of $2.2-$2.3 billion). Based on current market environment, foreign currency translation is likely to hurt full-year 2016 sales by $90 million to $100 million, up from about $80 million expected earlier.

The company also narrowed its adjusted EPS guidance range to $1.51-$1.61, from $1.49-$1.69 guided earlier. The company continues to expect fiscal 2016 GAAP EPS to be 6 cents, lower than adjusted EPS on account of restructuring charges and investigation-related costs.

Donaldson currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the pollution control industry include Landauer Inc. LDR , Tetra Tech, Inc. TTEK and Vertex Energy, Inc. VTNR , each sporting a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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