Donaldson Reports Q4 Earnings, Record FY 2023

Donaldson Company, Inc., a developer of technology-led filtration products and solutions, reported fiscal 2023 net earnings of $91.9 million in the fourth quarter and $358.8 million for the full year, compared with $101.1 million and $332.8 million, respectively, in fiscal 2022.

The company said fourth quarter and fiscal 2023 earnings include restructuring and other charges of $4.9 million and $21.8 million, respectively. Fourth quarter and fiscal 2022 earnings include $3.4 million of charges related to the conflict in Eastern Europe, the company said. Fiscal 2023 GAAP earnings per share (EPS) were $0.75 in the fourth quarter and $2.90 for the full year, compared with $0.81 and $2.66, respectively, in fiscal 2022. Fourth quarter and full-year 2023 adjusted EPS3 were $0.78 and $3.04, respectively, compared to $0.84 and $2.68, respectively, in fiscal 2022.

“Fiscal 2023 was a milestone year as Donaldson delivered record sales and earnings, while also improving margins and investing for future profitable growth,” said Tod Carpenter, chairman, president and chief executive officer. “Our employees demonstrated tremendous resilience and dedication as we redesigned the Company to increase customer focus and efficiency. In the fourth quarter, we continued to strengthen our foundation and made investments in key strategic growth areas, including the life sciences segment with our acquisition of Univercells Technologies, to drive Donaldson to the next stage of its evolution.

“We remain focused on executing our balanced growth strategy, strengthening our leadership in legacy markets and expanding across new markets as we provide innovative, technology-led filtration solutions for our customers. While we look to fiscal 2024 as a year of ongoing investments, critical to achieving our long-term financial targets, we are also committed to continuing our best-in-class execution, ongoing R&D initiatives, and the scaling of our acquisitions. As such, we are forecasting another year of record sales, and record earnings and operating margin.”

Fourth Quarter Operating Results

Sales decreased 1.2% to $879.5 million from $890.0 million in 2022, due to volume declines partially offset by pricing benefits, the company said.

Donaldson’s mobile solutions segment sales decreased 4.8%, resulting from volume declines. Aftermarket sales fell 6.7% as large OEM customers continue to normalize inventories in response to improving global supply chain conditions. Off-road sales fell 0.4% from weaker market demand in the Americas and China. On-road sales rose 5.5% driven by elevated levels of global equipment production.

Gross margin was 34.1%, up 130 basis points from 32.8% in 2022 driven by pricing benefits and the stabilization of input costs. Adjusted gross margin, which excludes the impact from restructuring and other charges, was 34.3%, an increase from 32.9% in 2022.

Operating expenses as a percentage of sales was 20.4%, 220 basis points above 18.2% in the prior year, resulting from an increase in post-pandemic hiring and incremental acquisition-related expenses. Adjusted operating expenses as a percentage of sales were 20% compared with 18% in 2022, the company said.

Operating income as a percentage of sales (operating margin) of 13.7%, declined 80 basis points year over year from 14.5% in 2022 as operating expense deleveraging more than offset the gross margin improvement, the company reported. Adjusted operating margin was 14.3% compared with 14.9% in the prior year.

Interest expense was $4.9 million versus $4 million in the prior year due to higher interest rates. Other income, net was unfavorable by $1.7 million compared with the prior year due to higher pension costs. The company’s effective tax rate was 21.7% versus 21.4% a year ago.

For the full-year, Donaldson paid $114.4 million in dividends and repurchased 2.0% of its outstanding shares for $141.8 million.

Fiscal 2024 Outlook

For Donaldson, full-year EPS is expected to be between $3.14 and $3.30, compared with fiscal 2023 GAAP and adjusted EPS of $2.9 and $3.04, respectively. Sales are projected to increase between 3% and 7% over the prior year, with a pricing benefit of approximately 2% and a currency translation tailwind of roughly 1%.

Mobile sales are forecast to increase between 1% and 5% year over year. Continued end-market demand driven by elevated levels of global equipment production is expected to drive low-single digit growth in Off-Road and On-Road sales. Aftermarket sales are projected to increase mid-single digits as a result of higher vehicle utilization rates and market share gains.