FABRIC
FILTER      
NEWSLETTER 

 

March, 2013
No. 449

Donaldson Reports Second Quarter Results

Donaldson Company, Inc. announced its financial results for its fiscal 2013 2nd quarter. Summarized financial results are as follows (dollars in millions, except per share data):

Three Months Ended

Six Months Ended

January 31

January 31

 

2013

2012

Change

2013

2012

Change

Net sales

$ 596

$ 581

3%

$1,185

$1,189

0%

Operating Income

71

75

(5)%

145

165

(12%

Net earnings

51

54

(6)%

105

122

(14)%

 

 

 

 

 

 

 

Diluted EPS (*)

$ 0.34

$0.35

(3)%

$ 0.70

$ 0.80

(13)%

  *   The prior year EPS amounts reflect the impact of last   year’s two-for-one stock split.

“Our diversified portfolio of global filtration businesses delivered a new sales record in our 2nd quarter,” said Bill Cook, Donaldson’s CEO. “Our Gas Turbine Products’ sales increased 79 percent as we shipped a number of large project shipments to our customers this quarter. This offset weaker sales into the North American On-Road truck market, the On-Road and Off-Road equipment markets in Asia, and for On-Road and Off-Road replacement filters in Europe. We did see improved demand for replacement filters in the Americas and in Asia, with our local currency sales increasing 4 and 6 percent, respectively.”

“Despite our higher sales, our operating margin decreased 100 basis points from last year to 11.9 percent due to lower fixed cost absorption in our Engine Products segment and the mix shift to large Gas Turbine project shipments. This was partially offset by savings from our ongoing ‘Continuous Improvement’ initiatives. We continued to take actions to better align our manufacturing and operating expenses with our forecasted customer demand. However, we are also continuing the engineering work on many new OEM customer programs that will be going into production in the next 24 months. In addition, we continue to work on our global Strategic Business Systems project. We have chosen to continue these investments to support our Strategic Growth Goals.”

“Based on input from key customers, we see current market conditions continuing in the near term due primarily to the ongoing high levels of global economic uncertainty. Fortunately, we anticipate strength in our Gas Turbine business for the balance of our fiscal year, which will help offset some of the weakness in our other businesses. As a result, we are forecasting our company’s full-year sales to be approximately equal to last year’s record $2.5 billion, and our fiscal year 2013 EPS forecast is between $1.61 and $1.81 per share.”

Financial Statement Discussion

The impact of foreign currency translation decreased sales by $1.7 million, or 0.3 percent, during the quarter and decreased sales by $18.6 million, or 1.6 percent year-to-date compared to the same periods last year. The impact of foreign currency translation increased reported net earnings by $0.2 million, or 0.3 percent during the quarter and decreased reported net earnings by $1.2 million, or 1.0 percent for the year.

Gross margin was 33.4 percent for the quarter and 33.5 percent year-to-date compared to prior year margins of 34.6 percent and 35.0 percent, respectively. The year-over-year decrease is primarily attributable to lower fixed cost absorption due to the decrease in Donaldson’s production volumes and the mix impact due to large Gas Turbine project shipments. Restructuring expenses included in gross margin were $0.5 million in the quarter and $0.7 million year-to-date. The lower fixed cost absorption and restructuring expenses were partially offset by the benefits from Donaldson’s ongoing “Continuous Improvement” initiatives.

Operating expenses for the quarter were $127.8 million, up 1.4 percent from last year’s $126.0 million. As a percent of sales, operating expenses were 21.4 percent compared to last year’s 21.7 percent. Operating expenses year-to-date were $252.5 million, or 21.3 percent of sales compared to $250.7 million, or 21.1 percent of sales last year. Restructuring expenses included in operating expenses were $0.9 million in the quarter and $1.0 million year-to-date. Their cost containment actions helped offset the restructuring expenses, higher pension expenses and incremental expenses related to their Strategic Business Systems project.

Donaldson’s effective tax rate for the quarter was 28.3 percent compared to a prior year rate of 29.6 percent. The decrease was primarily due to $0.8 million in tax benefits from the retroactive reinstatement of the Research and Experimentation Credit in the U.S. The year-to-date effective tax rate was 28.9 percent compared to a prior year rate of 27.3 percent.

As part of their ongoing share repurchase program Donaldson repurchased 320,000 shares, or 0.2 percent of their diluted outstanding shares, for $10.2 million during the quarter. Year-to-date they have repurchased 1,820,000 shares, or 1.2 percent of their diluted outstanding shares, for $61.0 million.

Fiscal Year 2013 Outlook

·      Donaldson is projecting their full-year sales to be approximately equal to last year’s record $2.5 billion. Their forecast is based on the Euro at US$1.34 and 94 Yen to the US$.

·      Their full-year operating margin forecast is 13.9 to 14.7 percent.

·      Their Fiscal Year 2013 tax rate is anticipated to be between 28 and 30 percent.

·      They forecast their Fiscal Year 2013 EPS to be between $1.61 and $1.81.

·      Cash generated by operating activities is projected to be between $240 and $270 million. Their capital spending is estimated to be between $90 and $100 million.

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