Donaldson (DCI) 4 Jun 242024 Q3 Earnings call transcript

Thank you for standing by, and welcome to the Donaldson Company Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. I'd now like to turn the call over to Sarika Dhadwal, Senior Director of Investor Relations and ESG.

You may begin.

Good morning. Donaldson's Fiscal joining Call. Earnings for you Third XXXX Quarter Conference Thank me Chairman, Financial Robinson, Carpenter, are Officer. and With Tod Scott CEO today President; and Chief

This for fiscal summary provide performance morning, details XXXX. Scott third and outlook our quarter a our on Tod and of will

call, will we today's non-GAAP or During results. adjusted discuss

A exclude in of were for fiscal year release. the adjustments quarter of pretax and either charges the reconciliation results other restructuring there million. non-GAAP attached While provided non-GAAP fiscal to of $XX.X full the XXXX, third within press no to metrics XXXX XXXX, GAAP non-GAAP or morning's this is schedules

please Additionally, ahead. and that, Tod I'll risks mind to and go statements forward-looking uncertainties, call Carpenter. now which Please turn SEC made filings. With the in any over release during keep are to call press subject in this are described that our

third morning. margin growth decade-long increased X% X $XXX demonstrated and a Good record Donaldson Sarika. operating high. record profitability. Thanks, and results a Company's increased Sales than segments were a to at more to $X.XX EPS excellent. million. All quarter XX% was operating

Mobile growth Solutions, gains pricing by in In our business. exceeded strength aftermarket driven volume

gains Collection Power improvement market Defense a hit remain and model. to an by maintain as and period. wins all-time high profitability after strong driven margin share robust. and prior benefit growth as replace XX.X%. service and a Mobile was project Dust also well over on Solutions high sales our pricing. In and XXX-basis-point return share levels market quarter and year volume of in Profitability advancing favorable Industrial create, We of to in the continue exceptional. be Aerospace focus had more backlogs strength connect, profit mix, Pretax Solutions, We from Generation. levels and demand continued, a in year normalized gains destocking prior continues result This to of

Georgia. presence new Filtration, EasyFlow additional an both United in power a industrial Southeast capabilities brings the in and acquired services LaGrange, hydraulic geographic Donaldson service in business and we quarter, EasyFlow This States. to filtration generation

we Sciences, in through Life Disk our above and profitability In XX% Drive sales businesses. bioprocessing strength achieved and growth

development We also come. and be for agreement in remaining April, beverage. in an membrane the hollow public leader and including in food through completed a technology in a an the XX% to Medica acquire entered XX% years and In to call to we applications, established into build S.p.A., Medica option relationship acquire through exclusive stake is the future. agreement, to joint Italy. stake transaction Medolla, company for Sciences a Donaldson fiber allowing bioprocessing includes and the based and the a to expected a continued previously tender offer hollow-fiber This Life in modules development in of have commercialization

used be Technologies customers can and products, progress Univercells complete and modules with Solaris, differentiated toward providing and with portfolio. These Isolere product vision demonstrating our a

focus customer on-time From future. Donaldson's our an segments steadfast the chain the all work remain foreseeable of indicating we delivery across to overall health as continually supply conditions remains mostly X standpoint, businesses rates. strong, improve With operational backlogs for supportive,

focus M&A on and Industrial deployed expenditures expanding in primarily and were keeping with Services capital new on levels in areas, segment. previously technology focused expect R&D, acquisition, our to Life of acquired the quarter, needs capacity strategic included Sciences Capital increasing the our our future double customers. activity expenditures meet also we to newly for continued development In the including product and we This as businesses digits mentioned we year. our full products and invested capital EasyFlow. initiatives R&D legacy M&A grow our investment and

a million, mid-single more contributed up prior mid-teens share sales Independent grew levels to from weak. soft particularly due in detail following of year-over-year normalized XX% channel to and provide XXXX. Now markets continues businesses. destocking in gains as returned remain were declines business X% $XXX performance market X%. strong million. approximately levels $XXX grew year were demand Mobile aftermarket be the million versus Mobile lower million, company in sales equipment Partially up In of sales agriculture down sales digits Total as $XXX were to sales the year. X% production, period. APAC. aftermarket the XX% in and $XXX first-fit X% declined increase in quarter On-Road OE China Pricing Sales were Off-Road were sales. some million, channel offsetting sales total Solutions, prior third on $XX to will compared I with

a Solutions I where timing of To growth Chinese our Mobile aggregate, overall impacted Both there year. second the in XX% third this our ability end, first optimistic of quarter China the over aftermarket weak fewer remain sales business and market the sales the over nature opportunities demand gain versus we will touch days Year, ship prior Despite decline today, challenging China to respect in to market long-term the the ago, on and resulting in year fell and year by time. into quarter with year. this which decreased share that New

Collection Defense $XXX $XXX or sales and robust conditions. strong to market million and to Now IFS, to X% $XX Industrial the Aerospace to parts Industrial million project and sales move sales on by grew Industrial X% rose driven increased X% aerospace million. Power to timing. replacement Generation Dust due sales Solutions Solutions Filtration segment.

points bioprocessing large part of project approximately Disk as million a growth In the of or Acquisitions $XX timing XX were in due $XX of segment, to due Life sales added XX% percentage sales Sciences and the Drive strength. shipments. up million, equipment year-over-year result

to sales, the margin this be forecasted results is and our summary, record of operating In year Scott the proud full which detail. Fiscal earnings we year and Donaldson earnings. quarter our a driven fourth record are I of what the am by strong outlook quarter, accomplished will guidance, XXXX for team increasing record

to details it over provide will more turn I'll the who Scott, Scott? on financials. Now

Thanks Without not want them, deliver quarter. performance, Donaldson fantastic entire a our Tod. in to would work confident have I to I to collective in this everyone. success Good future. the been thank drive such able we strong ability and team morning, their our continued am for

percent XX.X% and for up input increased leverage Before points deleveraging points was people-related fiscal a will ago. Expense X% largely partially Operating deflation. expansion, sales a increased expenses XXXX, cost discussing I was to our as gross higher XXX as driven increased quarter. $X.XX due XX.X% of above expenses Gross Operating additional of XX.X% XXXX result by acquisition-related the partially was XX.X%, costs of and XX% prior give margin by XXXX, basis outlook details above year on deleveraging. income margin were EPS select contributed. third sales, pricing on a offset basis operating XXX the for margin operating also Sales results higher year-over-year. versus from of year expense expanded versus XX% headcount,

say, always of are levels delivered I higher we higher to on of clearly and we profitability levels that sales, committed quarter. As this

discuss Now I'll profitability. segment

XX.X%, was profit pricing basis year. As above prior margin Tod mentioned, benefits. Industrial mix, resulting Mobile XX.X%, growth points favorable year, Solutions profit Solutions prior and was XXX margin a record pretax flat volume from approximately pretax versus of

the this with profitability levels blended and pleased business, margins Industrial will for delivering the has company. increase Business of to the which look been high are growing We forward

Life of XX X%, from acquisitions a business percentage a profit Our approximately margin points. pretax including Sciences headwind generated of

are We our by in performance quarter. the encouraged improved

Life revenue our However, expectations business our delayed digits. acquisition-related low inflection has profitability profitability down scaling our we The not are point. wavered. confidence previous support longer-term This in margin of full of to top single growth year below tracking investments profit nature and the year said, ongoing some has expect our uncertainty. it That full of projected brings now sales and timing to potential on be Science layered with

of year-to-date quarter segments, the in financial the we'll have are tracking guidance of trends X we longer-term fourth our expectations, X seeing call. evaluating with Given our and X ahead during provide all fiscal XXXX an targets been update we with

sheet flow highlights. to a balance Turning few cash and statement

was on approximately conversion with Third working focus expenditures year million. the continued by Cash par prior driven quarter on capital efficiency. XXX% quarter were our capital in $XX

we form terms the $XX other share $XX million in million $XX of repurchases. shareholders, of deployment, inclusive and returned capital dividends in approximately to of In million

invested EasyFlow a acquisition. with the debt-to-EBITDA quarter ended on million net also the We $X ratio We of X.Xx.

Now moving our to outlook. 'XX fiscal

First, on sales.

currency year our sales forecast. translation. This a impact to narrowing and of and are X%, benefit total minimal full X% increase X% our from guidance with We of pricing approximately between includes an prior consistent a

our global increase remain For digits have remain sales Off-Road to from reduction digits Mobile weak. an versus soften, and be low double continued and forecast our in flat markets to previous we agriculture unchanged to down low X%, are a driving markets of between forecasting negative Solutions, expectation. projected China single On-Road as X% previously.

of of the Power continues aftermarket grow line of our driven destocking by to a and a and be in prior Generation IFS our midpoint with guidance are with to result expected growth midpoint gains Dust of which for X% sales the mid-single-digit forecast X%. market X% from and between range, as in carried X% expectations. lapping Collection sales up outlook mid-single Solutions straight prior previous are period. Industrial increase Our a year digits to in share

market single sales Aerospace conditions robust digits, and digits Our low for expect mid grow we now from has as to and improved, double outlook end Defense continue. up previously

for guidance full compared Sciences, year Life the For sales approximate to with our a growth the increase are we XX% previously forecast. mid-teens reducing

product the pleased encouraged bioprocessing by with are our and in interest We portfolio. technologies and

biopharmaceutical assets. research capital constricted many However, in early-stage and markets, for remains particularly

Food point focused by ago. While we partially previous the the near adjusted and are we an for remain XX.X%, With record expansion momentum to profitable future Drives, of approximately this by our basis of respect consolidated a expense on Beverage, all-time such as technology groundwork operating investing driven Disk navigate we businesses midpoint, for and as with margin, deleveraging conditions, compared we and to margin our reaffirming maintain out XX.X% the gross the is year operating capabilities which In success. ongoing in expect our growth. as challenging year-over-year guidance improvement electrification. we building offset term, macro current commitment margin vehicle and future XX At XX.X% an to laying

million and venture income to approximately be projected from between $XX to $XX our We is $XX to million and from million, million other is joint for $XX income benefits. expected prior income $XX tax. Interest FX Other due down million, guidance interest, previously. $XX up million are of better-than-expected and outlook slightly adjusting

and from is XX%, XX% tax XXX Our rate points basis between guidance. forecast down prior

deliver For are a and us, behind stakeholders year and XXXX. to we the or $X.XX our increasing midpoint increase XXXX With our performance $X.XX, in between fiscal $X.XX our pleased to of adjusted EPS and are all from at a the positioned $X.XX fiscal EPS, beyond. of than outlook quarters to we XX% X ever better with in

on products vital year. our Capital for deployment the sheet expenditures to to and range. outlook. projected forecast and flow million investments, at our $XXX the new above capacity to million, is growth are Now and $XX between balance Capital million Donaldson, is weighted full to including previous towards XXX% historical cash averages XX% conversion down $XX unchanged. slightly million from $XXX strategy technologies is for and Cash

into or on we company, First, back M&A inorganically as through we to reinvesting focused continue organically are demonstrate. either the

dividend an outstanding to our intend also quarterly approximately year. dividends our we of repurchase shares to repurchases. announced cash our we shareholders look this increase return through in X% fiscal Last and value We to X% week, share and

to Tod. back the Now call I'll turn

in technology Scott. am ongoing confident Donaldson strategy, investments. team, Thanks, ever than and I our more pipeline the long-term

towards are our as XXXX both to committed Investors' our our Day objectives ambitions. ESG XXXX fiscal working as financial targets, We well

fostering and our QR our report, website XXXX strategy, During published creating sustainability our earnings value our accessed diverse for our sustainability underpinned environment the a by planet. our is or The sustainable safe the slide our code fiscal through operating products, with on can presentation. which focus via highlights and we quarter, sustainably on which people, within be report a

I'll touch on a areas. Products. in few these recent highlights

in technology used various Sciences. the Group manufacturing ingredients medical we our In in which our and of in PolyPeptide of peptides, improve partnership capabilities active pharmaceutical Life with sustainability are May, therapies. to are announced We innovative development proud

of on life-changing environmentally solvent recovery collaboration development value production the is manufacturing through Our system milestone creating of in processes. sustainable marked our the Donaldson the industries pursuit technologies. a friendly also scale pharmaceutical

processes therapies where proofs develop are development crucial programs supporting currently to including of scale and and over and and XXX XX therapies utilized concept advancing XX customers cell RNA are our gene technologies trial, by drug traditional vaccines. for and We

are Many preclinical of stage. in these programs currently the

year. likely trials However, have commercial production we that are to enter a that this are few in calendar do some clinical and

include our these our strategy. originated Isolere Univercells, organically acquisitions, that customers the M&A Importantly, of Purilogics both and demonstrating and power via

our planet. our people on and Now

We have of planet diversity safety in report, recognized. work ambition, our documented been has people and sustainably. and achievements much notable promoting sustainability our XXXX including our progress of are publicly made Many and our toward operating and

For the U.S. XXXX, Donaldson is included in

of News Most Report Newsweek's best list to for greatest Companies. Responsible and World America's for workplaces and diversity companies and work

To thank turn questions. With am team all we Donaldson of the back that, to are I call the I want proud will valued and line doing to operator the employees. and close, this the now of our to for open work

line [Operator Morgan Instructions] Stanley. Angel of Your from the first question comes Castillo from

Just you full margins. on bit year talked the outlook little performance of obviously view continuation touch wanted for to more about a a base and the here, on operating that. Strong

on just that views operating full and input year here little more could quarter? you just unpack kind the the of for for fourth why kind So a just of raise the the margin, curious not bit if

This Yes. Scott. is

So I that the we're XXX quarter XX.X%. delivered. with basis improvement. Operating in pleased we mean, quarter the That's excellent was points margin

the of quarter the guide year the With sequentially number. in you'd by markets midpoint our a at increase expect and in did fourth significant prior the quite if see over math, you XX.X%, we another operating the

and about in our the midpoint, So pretty the guided Strong improvement for come through. XX to year. we point good we fourth margin previously basis at performance, feel improvements -- expect contemplated this to quarter decided the operating

the where pretty guidance. about sit, So we we we good and feel where left that's

Sciences. Life a That's more little on then bit could you helpful. unpack And

after confidence I recall, you fiscal think kind XX%. I factors XQ, a of that there number in of there the give plus was as

some may like sounds some changed. So timing investments of those or those maybe kind of have of

at you changed? understand of to expectations can help that factors us kind of terms essentially here? fiscal play there has other are So in out And Or what's 'XX? gotten just just pushed

Sure.

is able about had in that. to to quarter, to were of able that. was the those the clear. some we of get As into been we we backlog was talking support What have went previous We interesting the some we that our deliver be previously to of quarters, guide that able lumpiness projects were

that actually then incoming a than a the within the we bit our side, quarter. also, more And at expectation. as experienced more pushed on Some orders the bioprocessing has little little of what carefulness look bit you is

reason bit the expected little more we So than would change. overall, a have really movement is for the

question next of the Alexander Your line Laurence from from Jefferies. comes

it for of Laurence. we should given the think Are continue investment on was of I wondering, I end to thinking at Rizzo longer mean, Or Dan I growth years, the of X -- it is is this the This kind of the over X just outlook, should how to about Just the large mean, term? to rate? kind to going CapEx cycle? accelerate? kind we next coming

X.X% all at rate expect In that of the sales. for we Yes. be to I maximum be expected Scott. our said CapEx still meeting, be -- mean completed case. this to to able we is a Day contemplated Investor We

most. Solutions invest of and well can very capital Industrial of Life the revenues at have that really we us. in and We great business our continue to do that they guide invested and performing level we with X.X% Sciences to that think of to within to front are a Solutions capitalized expect see. that well great in some be the original do for Mobile I expect of of able opportunities have But future

given a helpful. costs moving towards are we are, of we be more kind in And there'll environment know, with guess, cost I going thing more Well, modest will back it I Same historic terms in very overall. some the I we're mean, That's in of then be, kind it's forward. of don't check, pricing, environment? pricing. with guess, more I -- where in, input costs, -- But

Yes.

the happening company a point I take some we of now, based freight more our pricing look across and the returned when about business headwinds, to you've cadence feeling a pricing and you talk our back raw lot cost material certainly, sure. a the a the of do still have that you When want normal company. some across what's got behaviors our markets. in on overall, commodity, a out But based the portfolio people So though normal not for commodities materials of at some at to it's of look behavior has inflation the to entirety or across selective while labor ramifications of abated we have are headwinds, full definitely headwinds.

supporting within really -- in are may environment, certainly mixed advertised that headwinds the a still careful actions not to pricing more really it's company be approach but experiencing a pricing, a our So markets. the more

comes from Stifel. from question next of Our Jones Nathan line the

Farley start is able Adam SG&A Life operating be wanted the in should should Are with is structurally medium operating to to teens. from business to on we the Science these for higher Nathan. This Donaldson short into expenses term. expect back What I high the expenses. expenses or leverage will

Yes.

that when we're So and targets, a we're look doing, you right, Day Day building side. Investor just above the Sciences a to above ground Investor is is at Industrial what Life targets. Mobile and out targets, business Industrial our take in you

of we'll we continue invest we expect where as those Life increases levels that press Sciences We Life in kind to build investment continue those on Sciences, seeing. you're we harder. would our surely, to even see So opportunity, to and have

those some actually that than given we typically could that high-teens company referenced. But lower we bit into And as potentially, the that would time, fact, so in keep a have a business certainly, and averages hockey a in of that to see nature drive investments the stick company is over that of number renormalize that continues term, back bit will, the elevated. build, short

was touch Drives. And then to helpful. softer XXXX market. on wanted Disk a That's Okay. I

normalized back more markets of a challenges Is the and revenue corrections. today? business end expect you saw You some more to Or do level inventory there? soft

back more it's little level certainly increasing. a normalized a Yes, to far bit as as

growing. certainly, people stepping actually Disk We're the again, Drive is manufacturing It's us. up bottom ramping it It plants, forward. expectations So certainly. hiring customers' are the we're in is behind our

us. is And bit behind lock reset little now business. that So expect fully we on that to forward a

of question Blair. Drab from the William next line from comes Your Brian

I What Tyler the on guidance? On-Road what if wondering particularly for Brian. is more could you about on This just reduction the in softening? are elaborate markets was

slight is at particularly, high levels. just still But and On-Road, On-Road, program manufacturing. So the Well, I have they it's focused. of where that's bit really fits the softening be in yes, and Markets just a would with little And slightly, right? headwinds would where China vehicle place the -- type U.S.-based long-haul within trucks, kind that the other it guess, because of of we starts there. be of are the

going sense. follow to just market revenue just all those of line of the summarize products? us apps a Can time and of the remind kind kind Makes up. exactly And like first you is bioprocessing, what of just near-term in

sure. Yes,

there's that within So quite vertical. business will, portfolio sector, that within if a broad-based you

businesses, Food and our and would growth our Disk also to Beverage we and grow. and out based of you but Food We're expect expect Drive continue have Beverage really we pressing to that You nicely have that base quite business.

really within that to a The particular the gives it Those within of sector. rise, same X polymer-based -- are of but the opportunity branches the applications. electrification why our us in some be more that's We techniques portfolio use some have But vehicle our technology and go vehicle manufacturing there. bioprocessing is medical-based and to across. That's electrification of positive. of able it's businesses Those within headwinds vertical. some businesses we where also therefore, broad that

Isolere bit us of Univercells our our pre-revenue, up, give kind our investments those headwind. to to So is -- ramp pre-revenue and little continue Purilogics, we a which of continue Technologies, which as is Bio, those

Okay.

bioprocessing? the within Just to driving is Univercells confirm, only revenue the one right now

of populate support-based Of programs we very in the it's script. revenue, revenue, laboratories support lab very, driving acquisitions, therapy-based is yes. within and the Isolere Univercells we referenced that small continue have Purilogics some as to but

next question from of from Your Instructions] [Operator Mason Rob line comes the Baird.

in was are business gains layering hear It's the curious ask around in Aftermarket though, part distorting good the those And guidance normal -- mid-single Mobile your like, seasonality you share typical of and or year. evident that really the is commentary reason as in, business. full that's I the digit normally that would digits. for it I part continued the that the kept what season not But to fourth guided about of mid-single business? is the that in up for looks at be given quarter just the seasonality

So the conservatism is some share on layering are that dynamics gains in? outlook? is Or there just just the

Great Rob. Thanks, question. Yes.

down some for you. So let break me things

So look we our certainly, when Aftermarket, you a XX%. had quarter, at up Mobile nice

OE. Let me break that down into

digits. the was up then mid-teens, high single up So right? independent channel OE was And

where side And its in back But that so on returned to is as we old comp when pre from it now business business where as such okay? was you would see OE the so year. had the seasonality comps to teens, side sign the go see. really see a that you you you now is the up through surefire coming easy typically seasonality, last really the return, back OE the pull-through destocking and which we've

XX% is the the in as know, and long, following of XX% for our the the more year company from really that first half. of second a why And half is in model you so

definitely seasonality I it. understand then just in it why second obvious. the seeing support seeing may be it's are -- OE in And we Aftermarket that clearly gain. So the channel, quite company to half. on we that independent revenue specifically channel, not the are But XX% so that share can It's

Yes.

Or that? that's maybe really at income, contributor would be? think the high JV it Again, to stick degree that to such And I strongly. that come Mobile. on would the there influencing a to support sustainable just profitability how JV guess, -- a is the is incrementals? influencing through if Just income pretax what level you continues

model would contribution, much But the of we've are to that JVs better a is, not expect appreciable within than It's functioning the the to not It's But volume now certainly for result its increases our sustainable. story. they in it's experienced couple we be were years it as really of ago, of sure. honest. -- a it be where really

question IFS Okay. equipment piece into just commented on could is being and the side, side that equipment the backlog business. the play balance seeing relative on incoming what the quotes on as the you're of And a How quoting healthy. how the on I'm well. just you on year to the Aftermarket curious

the About as last same quarter. were we

we So would it's elongated. slightly say

it So slightly, a month like or so just ever so. by

back So to quote weeks of to order X X to normal if say, X you now in, might kind X weeks, go XX thing, to to of and it would it measured be maybe weeks, a be kind thing. X

So projects, -- feels multimillion large still careful. within projects Dust just it you're but bit little Collection. seeing dollar more all And a a

capacity quarter. the strong you of us, because at overall and and you grow. as was et really Aftermarket have cetera. But comfortable business still second continues usage for to So much end got gain the And share plant it business our expansion, is overall,

I see.

you're question, interesting I acquiring fiber that Just technology. the pretty membrane is last getting if hollow Medica The could. stake that to access

already you Just work coming on would outlook been particular the contribution had for revenue what status that ongoing And relationship? current development be What's some from of that? commented the there. that joint

Sure.

have those any our year, So for filters to within certainly It lab-based applications, bioprocessing yields have fiscal is next this and an I But particular us those to year. time of doing would processes, type to utilize filtration number of processes. released. take and see would to what flow improve productions, we're help approval Medica fiscal We do going bioprocessing get able products revenue bioreactor all a to process that already, support go to with products. culture we're of develop to certainly, being bioprocessing expansion is it expect cell revenue. developing next through year, really strategy. for late not and tangential those been going overall sometime The overall quarters likely some within

So portfolio filtration have does technology Donaldson its today. that it's a not in Company fundamental

the it corporation. what excited So to about we're really brings

our concludes question-and-answer and session. back that turn will over now remarks. closing And Carpenter I to call CEO, the for Tod President

today. to That to who great Thanks quarter August. fourth concludes participated, XXXX fiscal Goodbye. Have call our I day. a forward reporting in and look the results everyone

This Thank concludes today's your you conference participation. for call.

now may You disconnect.