Donaldson Reports Record Third Quarter Results
Friday, May 18, 2012 7:00:01 AM ET Donaldson Company, Inc. (DCI ) announced its financial results for
its fiscal 2012 third quarter. Summarized financial results are as
follows (dollars in millions, except per share data):
Three Months Ended Nine Months Ended
April 30 April 30
--------------------------- ------------------------------
2012 2011 Change 2012 2011 Change
-------- ------ -------- --------- --------- --------
Net sales $ 647 $ 595 9 % $ 1,836 $ 1,669 10 %
Operating income 98 83 18 % 264 225 17 %
Net earnings 71 62 15 % 193 160 21 %
Diluted EPS (*) $ 0.46 $ 0.39 18 % $ 1.26 $ 1.01 25 %
(*) The current and prior year EPS amounts reflect the impact of the
two-for-one stock split that occurred on March 23, 2012.
"The continued strength in many of our mid-cycle businesses and the
beginning of the recovery of our late-cycle Gas Turbine Systems
products, combined with ongoing solid execution across our Company,
helped us set new quarterly records in sales, operating margin, and
EPS," said Bill Cook, Chairman, President and CEO. "Led by a 15 percent
increase in Gas Turbine Products, sales growth was strong across all
three of the product groups within our Industrial Products segment, with
overall sales up 11 percent. Sales in our Engine Products segment grew 8
percent as new equipment build rates at our Off-Road and On-Road OEM
Customers remained healthy."
"We achieved a record operating margin of 15.2 percent due to the
combination of operating leverage in our plants and distribution
centers, our focus on effective execution in support of our Customers
and the benefits of the many Continuous Improvement initiatives
across our Company."
"We are forecasting continued growth through our fourth quarter with
full year sales expected to be up approximately 9 percent over last
year. Forecasted business conditions in our end markets remain
consistent with last quarter’s outlook through the end of our fiscal
year: strong in the Americas, stable in Europe, and slowly improving in
China. As a result of our continued strong operating performance, we
have increased our FY12 EPS forecast to be between $1.66 and $1.76,
which has been adjusted up from our previous guidance of $1.63 to $1.73.
All of these EPS numbers have been adjusted for the two-for-one stock
split we executed in March. Our new EPS guidance represents a new record
and is up 16 percent to 23 percent over last year."
Financial Statement Discussion
The impact of foreign currency translation decreased sales by $11.6
million, or 2.0 percent, during the third quarter and decreased sales by
$2.4 million, or 0.1 percent, year-to-date, compared to the same periods
last year. The impact of foreign currency translation decreased reported
net earnings by $0.9 million, or 1.5 percent, during the third quarter
and decreased reported net earnings by $0.2 million, or 0.1 percent, for
the year.
Gross margin was 35.3 percent for the quarter and 35.1 percent
year-to-date, compared to prior year margins of 35.2 percent for the
quarter and year-to-date. We continue to benefit from our ongoing Continuous
Improvement initiatives as well as improved absorption of fixed
costs compared to last year’s third quarter. These were partially offset
by a slightly less favorable sales mix.
Operating expenses for the quarter were $129.8 million, up 3.2 percent
from $125.8 million last year primarily due to the increased sales
volume. As a percent of sales, operating expenses were 20.1 percent in
the third quarter compared to last year’s 21.2 percent. Operating
expenses year-to-date were $380.4 million, or 20.7 percent of sales,
compared to $361.5 million, or 21.7 percent of sales, last year.
The effective tax rate for the quarter was 29.0 percent, compared to a
prior year rate of 24.5 percent. The current year quarter included $1.8
million of tax benefits primarily from a statute of limitation
expiration, while last year’s quarter included $3.5 million of tax
benefits from the expiration of some statutes of limitations and the
favorable conclusion of two international tax audits. The year-to-date
effective tax rate was 28.0 percent compared to a prior year rate of
28.1 percent.
As part of our ongoing share repurchase program we repurchased 261,000
shares, or 0.2 percent of our diluted outstanding shares, for $9.0
million during the quarter. Year-to-date we have repurchased 3,012,000
shares, or 2.0 percent of our diluted outstanding shares, for $82.6
million.
FY12 Outlook
We expect to achieve full year sales, operating margin, and EPS records.
--
We forecast our FY12 sales to be approximately $2.5 billion, or up
about 9 percent from the prior year. Our current forecast is based on
the Euro at US$1.28 and 80 Yen to the US$. With the recent
depreciation of the Euro against the US$, we do see foreign currency
translation to be a headwind for the balance of our fiscal year.
--
Our full year operating margin is forecast to be 14.2 to 14.8 percent.
--
Our full year FY12 tax rate is anticipated to be between 28 and 29
percent.
--
Cash generated by operating activities is projected to be between $260
and $280 million. Capital spending is now estimated to be between $75
and $80 million.
Engine Products: We expect
full year sales to increase 8 to 10 percent, including the impact of
foreign currency translation.
--
We anticipate sales to both our Off-Road and On-Road OEM Customers
will remain strong through the remainder of FY12. We will continue to
benefit from increased market share on our Customers’ new Tier IV
equipment platforms.
--
Sales of our Aftermarket Products are expected to increase moderately
based on current utilization rates for both off-road equipment and
on-road heavy trucks. We should also benefit from our continued
expansion into the emerging economies and from the increasing number
of systems installed in the field with our proprietary filtration
systems, such as our PowerCore(R) products.
--
We forecast Aerospace and Defense Products’ sales to be level with the
prior year as the continued slowdown in military spending is
anticipated to be offset by increased commercial aerospace sales.
Industrial Products: We
forecast full year sales to increase 8 to 10 percent, including the
impact of foreign currency translation.
--
Our Industrial Filtration Solutions’ sales are projected to increase 7
to 10 percent and assume a continuing improvement in general
manufacturing activity in the U.S., slowly improving conditions in
Asia, and forecasted strong fourth quarter project shipments in Europe.
--
We anticipate our Gas Turbine Products’ sales to be up 17 to 20
percent due to the recent improvement in the large turbine power
generation market and ongoing strength in the oil and gas market
segment. We have a very strong schedule for fourth quarter project
shipments to our Customers.
--
Special Applications Products’ sales are forecast to be level with the
prior year as growth in our membrane and venting product sales should
offset the reduction in our disk drive filter sales related to the
Thai floods last fall.
About Donaldson Company
Donaldson is a leading worldwide provider of filtration systems that
improve people’s lives, enhance our Customers’ equipment performance,
and protect our environment. We are a technology-driven Company
committed to satisfying our Customers’ needs for filtration solutions
through innovative research and development, application expertise, and
global presence. Our approximately 13,300 employees contribute to the
Company’s success by supporting our Customers at our more than 100
sales, manufacturing, and distribution locations around the world.
Donaldson is a member of the S&P MidCap 400 and Russell 1000 indices,
and our shares trade on the NYSE under the symbol DCI. Additional
information is available at www.donaldson.com.
SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "Act") and is
making this cautionary statement in connection with such safe harbor
legislation. This announcement contains forward-looking statements,
including forecasts, plans, and projections relating to our business and
financial performance and global economic conditions, which involve
uncertainties that could materially impact results.
The Company wishes to caution investors that any forward-looking
statements are subject to uncertainties and other risk factors that
could cause actual results to differ materially from such statements,
including but not limited to risks associated with: world economic
factors and the ongoing economic uncertainty, reduced demand for hard
disk drive products with the increased use of flash memory, the
potential for some Customers to increase their reliance on their own
filtration capabilities, currency fluctuations, commodity prices,
political factors, the Company’s international operations, highly
competitive markets, governmental laws and regulations, including the
impact of various economic stimulus and financial reform measures, the
implementation of our new information technology systems, potential
global events resulting in market instability including financial
bailouts and defaults of sovereign nations, military and terrorist
activities, health outbreaks, natural disasters, and other factors
included in our Annual and Quarterly Reports. We undertake no obligation
to publicly update or revise any forward-looking statements.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars, except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
April 30 April 30
-------------------------------------- --------------------------------------
2012 2011 2012 2011
------------------ ------------------ ------------------ ------------------
Net sales $ 647,237 $ 594,565 $ 1,836,415 $ 1,668,579
Cost of sales 419,008 385,407 1,192,435 1,081,788
----------- ----------- ----------- -----------
Gross margin 228,229 209,158 643,980 586,791
Operating expenses 129,792 125,826 380,448 361,515
----------- ----------- ----------- -----------
Operating income 98,437 83,332 263,532 225,276
Other income, net (4,340 ) (1,381 ) (13,750 ) (5,990 )
Interest expense 2,787 2,897 8,856 9,486
----------- ----------- ----------- -----------
Earnings before income taxes 99,990 81,816 268,426 221,780
Income taxes 29,044 20,005 75,106 62,256
----------- ----------- ----------- -----------
Net earnings $ 70,946 $ 61,811 $ 193,320 $ 159,524
== =========== == =========== == =========== == ===========
Weighted average shares
Outstanding (*) 150,536,631 154,651,222 150,385,389 154,716,918
Diluted shares outstanding (*) 153,207,471 157,408,094 153,067,148 157,524,628
Net earnings per share (*) $ 0.47 $ 0.40 $ 1.29 $ 1.03
Net earnings per share
assuming dilution (*) $ 0.46 $ 0.39 $ 1.26 $ 1.01
Dividends paid per share (*) $ 0.080 $ 0.065 $ 0.230 $ 0.193
------------------------------ -- ----------- -- ----------- -- ----------- -- -----------
(*) Current and prior year shares and per share amounts reflect the
impact of the Company’s two-for-one stock split that occurred March 23,
2012.
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
April 30 July 31
2012 2011
--------------- --------------------
ASSETS
Cash, cash equivalents and short-term investments $ 308,046 $ 273,494
Accounts receivable - net 453,488 445,700
Inventories - net 265,461 271,476
Prepaids and other current assets 72,781 75,912
--------- ---------
Total current assets 1,099,776 1,066,582
Other assets and deferred taxes 263,712 268,009
Property, plant and equipment - net 390,785 391,502
--------- ---------
Total assets $ 1,754,273 $ 1,726,093
==== ========= ========= =========
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable $ 204,491 $ 215,918
Employee compensation and other liabilities 185,228 219,326
Short-term borrowings 83,623 13,129
Current maturity long-term debt 2,311 47,871
--------- ---------
Total current liabilities 475,653 496,244
Long-term debt 203,646 205,748
Other long-term liabilities 77,062 89,390
--------- ---------
Total liabilities 756,361 791,382
Equity 997,912 934,711
--------- ---------
Total liabilities and equity $ 1,754,273 $ 1,726,093
==== ========= ========= =========
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended
April 30
-----------------------------------------------
2012 2011
------------------- ----------------------
OPERATING ACTIVITIES
Net earnings $ 193,320 $ 159,524
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 46,214 45,276
Changes in operating assets and liabilities (43,836 ) (23,958 )
Tax benefit of equity plans (9,698 ) (8,272 )
Stock compensation plan expense 8,624 7,560
Other, net (12,223 ) (11,587 )
-------- ---- ------- --------
Net cash provided by operating activities 182,401 168,543
INVESTING ACTIVITIES
Net expenditures on property and equipment (57,987 ) (42,400 )
Purchases of short-term investments (119,930 ) (67,985 )
Acquisitions and divestitures, net - 3,493
-------- --------
Net cash used in investing activities (177,917 ) (106,892 )
FINANCING ACTIVITIES
Purchase of treasury stock (82,573 ) (43,101 )
Net change in debt and short-term borrowings 24,435 (1,516 )
Dividends paid (34,277 ) (29,547 )
Tax benefit of equity plans 9,698 8,272
Exercise of stock options 12,345 13,535
-------- --------
Net cash used in financing activities (70,372 ) (52,357 )
Effect of exchange rate changes on cash (18,586 ) 22,199
-------- ---- --------
Increase/(Decrease) in cash and cash equivalents (84,474 ) 31,493
Cash and cash equivalents - beginning of year 273,494 232,000
-------- --------
Cash and cash equivalents - end of period $ 189,020 $ 263,493
==== ======== ==== ======= ======== ====
SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
Engine Industrial Corporate & Total
Products Products Unallocated Company
--------------- -------------- ----------- --------------
3 Months Ended April 30, 2012:
Net sales $ 407,041 $ 240,196 --- $ 647,237
Earnings before income taxes 62,136 38,792 (938) 99,990
3 Months Ended April 30, 2011:
Net sales $ 377,609 $ 216,956 --- $ 594,565
Earnings before income taxes 56,469 33,074 (7,727) 81,816
9 Months Ended April 30, 2012:
Net sales $ 1,171,600 $ 664,815 --- $ 1,836,415
Earnings before income taxes 170,432 103,688 (5,694) 268,426
9 Months Ended April 30, 2011:
Net sales $ 1,042,500 $ 626,079 --- $ 1,668,579
Earnings before income taxes 149,123 92,236 (19,579) 221,780
NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)
Three Months Ended Nine Months Ended
April 30 April 30
-------------------------- ----------------------------
2012 2011 2012 2011
------------ ------------ ------------- -------------
Engine Products segment:
Off-Road Products $ 100,307 $ 90,174 $ 281,450 $ 236,672
On-Road Products 42,133 30,924 124,134 88,726
Aftermarket Products 231,298 223,284 672,265 625,042
Retrofit Emissions Products 4,038 6,033 13,326 14,288
Aerospace and Defense Products 29,265 27,194 80,425 77,772
------- ------- --------- ---------
Total Engine Products segment $ 407,041 $ 377,609 $ 1,171,600 $ 1,042,500
--- ------- --- ------- -- --------- -- ---------
Industrial Products segment:
Industrial Filtration Solutions Products $ 136,082 $ 126,226 $ 401,522 $ 369,009
Gas Turbine Products 51,036 44,231 123,628 114,607
Special Applications Products 53,078 46,499 139,665 142,463
------- ------- --------- ---------
Total Industrial Products segment $ 240,196 $ 216,956 $ 664,815 $ 626,079
--- ------- --- ------- -- --------- -- ---------
Total Company $ 647,237 $ 594,565 $ 1,836,415 $ 1,668,579
=== ======= === ======= == ========= == =========
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
April 30 April 30
------------------------------ ----------------------------------
2012 2011 2012 2011
-------------- -------------- ---------------- ----------------
Free cash flow $ 58,565 $ 57,134 $ 124,414 $ 126,143
Net capital expenditures 21,638 18,349 57,987 42,400
------- ------- --------- ---------
Net cash provided by operating activities $ 80,203 $ 75,483 $ 182,401 $ 168,543
== ======= == ======= == ========= == =========
EBITDA $ 116,861 $ 98,667 $ 320,353 $ 274,586
Income taxes (29,044 ) (20,005 ) (75,106 ) (62,256 )
Interest expense (net) (1,553 ) (2,053 ) (5,713 ) (7,530 )
Depreciation and amortization (15,318 ) (14,798 ) (46,214 ) (45,276 )
------- -- ------- -- --------- -- --------- --
Net earnings $ 70,946 $ 61,811 $ 193,320 $ 159,524
== ======= == ======= == ========= == =========
Net sales, excluding foreign currency translation $ 658,886 $ 577,858 $ 1,838,846 $ 1,659,088
Foreign currency translation (11,649 ) 16,707 (2,431 ) 9,491
------- -- ------- --------- -- ---------
Net sales $ 647,237 $ 594,565 $ 1,836,415 $ 1,668,579
== ======= == ======= == ========= == =========
Net earnings, excluding foreign currency translation $ 71,844 $ 59,991 $ 193,474 $ 157,423
Foreign currency translation (898 ) 1,820 (154 ) 2,101
------- -- ------- --------- -- ---------
Net earnings $ 70,946 $ 61,811 $ 193,320 $ 159,524
== ======= == ======= == ========= == =========
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
April 30 April 30
------------------------ ------------------------------
2012 2011 2012 2011
----------- ----------- ------------ ----------------
Net earnings, excluding special items $ 70,946 $ 61,811 $ 193,320 $ 160,090
Restructuring charges, net of tax --- --- --- (566 )
------ ------ ------- ------- ---
Net earnings $ 70,946 $ 61,811 $ 193,320 $ 159,524
=== ====== === ====== === ======= === =======
Net earnings per share assuming dilution, excluding special items $ 0.46 $ 0.39 $ 1.26 $ 1.01
(*)
Restructuring charges per share, net of tax (*) --- --- --- ---
------ ------ ------- -------
Net earnings per share assuming dilution (*) $ 0.46 $ 0.39 $ 1.26 $ 1.01
=== ====== === ====== === ======= === ======= ===
(*) Current and prior year per share amounts reflect the impact of the
Company’s two-for-one stock split that occurred March 23, 2012.
Although free cash flow, EBITDA, net sales excluding foreign currency
translation, net earnings excluding foreign currency translation, net
earnings excluding restructuring charges and net earnings per share
assuming dilution excluding restructuring charges are not measures of
financial performance under GAAP, the Company believes they are useful
in understanding its financial results. Free cash flow is a commonly
used measure of a company’s ability to generate cash in excess of its
operating needs. EBITDA is a commonly used measure of operating earnings
less non-cash expenses. Both net sales and net earnings excluding
foreign currency translation provide a comparable measure for
understanding the operating results of the company’s foreign entities
excluding the impact of foreign exchange. Both net earnings excluding
restructuring charges and earnings per share excluding restructuring
charges provide a comparable measure for understanding the results of
the Company as compared to prior periods. A shortcoming of these
financial measures is that they do not reflect the company’s actual
results under GAAP. Management does not intend these items to be
considered in isolation or as a substitute for the related GAAP measures.
SOURCE: Donaldson Company, Inc.
Donaldson Company, Inc.
Rich Sheffer, 952-887-3753
