Donaldson swings to profit in Q2 but misses estimates

Donaldson Company Inc. (DCI) swung to a profit in the second quarter from a loss last year, helped by lower tax expense related to the Federal Tax Cuts and Jobs Act. However, the results missed analysts’ expectations. In addition, the company lowered its earnings guidance for the full year 2019.

Net income was $60.1 million or $0.46 per share compared to a loss of $52.9 million or $0.40 per share in the previous year quarter. Adjusted earnings grew 9.3% to $0.47 per share.

Net sales increased 5.9% to $703.7 million. The company benefited from the execution of its strategic priorities and expense leverage that more than offset the impacts from volatility within the quarter related to market conditions and currency.

Looking ahead into the full year 2019, the company lowered its earnings guidance to the range of $2.27 to $2.41 per share from the prior estimate of $2.31 to $2.45 per share. Sales are predicted to rise by 5% to 9%, including a currency headwind of about 3% and sales contribution from BOFA of about 1%. The revised sales forecast is 2 percentage points below prior guidance, with incremental currency headwinds and business performance each accounting for about half of the change.

For the full year 2019, Engine sales are now projected to increase between 6% and 10%, or 1 percentage point below prior guidance, due to the incremental impact from currency translation. Industrial sales are now anticipated to increase between 4% and 8%, or 3 percentage points below prior guidance.

Donaldson continues to project 2019 operating margin between 14.2% and 14.6%, an increase of 0.4 to 0.8 percentage points from 2018. The company continues to forecast capital expenditures of $130 million to $150 million and cash conversion between 60% and 75%. Donaldson remains committed to repurchasing about 2% of its outstanding shares during fiscal 2019.

For the second quarter, sales of Engine Products rose by 6% year-over-year, or 8.6% in constant currency. Engine results reflect broad geographic strength in Aftermarket, combined with strong On-Road growth in the US/CA and APAC regions.

Also read: Donaldson first quarter 2019 earnings results

Sales of Industrial Products increased by 5.6% from last year or 8.4% in constant currency. Sales of Industrial Filtration Solutions grew 13.5%, reflecting growth in all major regions and including a benefit of about 6.5% from BOFA. Sales of Gas Turbine Systems declined due in large part to the falling volume of large turbine projects, while Special Applications sales were down due primarily to declining sales of Disk Drive filters.

During the second quarter, Donaldson repurchased 0.3% of its common stock for a total investment of $21.1 million. Donaldson paid dividends during the second quarter of $24.3 million. Year to date, the company paid $102 million to repurchase shares and $48.7 million of dividends.

Shares of Donaldson ended Wednesday’s regular session up 0.52% at $51.74 on the NYSE. The stock has risen over 21% in the year so far and over 10% in the past year.

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