Donaldson Company, Inc. (DCI) is well poised for growth courtesy of strength across its businesses, strategic acquisitions, and focus on improving the product line and operational excellence.Image Source: Zacks Investment ResearchThe company has a market capitalization of $8.7 billion. Over the past six months, it has gained 14.2% compared with the industry’s growth of 11.7%. DCI currently carries a Zacks Rank #2 (Buy)Let’s delve into the factors that have been aiding the firm for a while now.Business Stren ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including earnings, comprehensive income, balance sheets, cash flows, and equity, with detailed notes on accounting policies and financial components [Condensed Consolidated Statements of Earnings](index=2&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20EARNINGS) The company reported increased net earnings and diluted EPS for both the three and six months ended January 31, 2024, compared to the prior year, driven by higher net sales and improved gross profit Condensed Consolidated Statements of Earnings (in millions) | Metric | Three Months Ended Jan 31, 2024 (in millions) | Three Months Ended Jan 31, 2023 (in millions) | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :----------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $876.7 | $828.3 | $1,723.0 | $1,675.6 | | Gross profit | $308.6 | $284.4 | $609.5 | $571.6 | | Operating income | $129.7 | $116.3 | $254.3 | $235.6 | | Net earnings | $98.7 | $86.0 | $190.8 | $173.2 | | Net earnings per share – diluted | $0.81 | $0.70 | $1.56 | $1.40 | [Condensed Consolidated Statements of Comprehensive Income](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Comprehensive income decreased for both the three and six months ended January 31, 2024, primarily due to a significant reduction in foreign currency translation gains compared to the prior year Condensed Consolidated Statements of Comprehensive Income (in millions) | Metric | Three Months Ended Jan 31, 2024 (in millions) | Three Months Ended Jan 31, 2023 (in millions) | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net earnings | $98.7 | $86.0 | $190.8 | $173.2 | | Foreign currency translation gain (loss) | $20.9 | $65.3 | $(16.7) | $25.2 | | Total derivatives | $(1.6) | $(4.9) | $(0.8) | $(0.3) | | Net other comprehensive income (loss) | $19.1 | $59.7 | $(16.7) | $25.4 | | Comprehensive income | $117.8 | $145.7 | $174.1 | $198.6 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Total assets slightly increased from July 31, 2023, to January 31, 2024, with a notable increase in current liabilities and a decrease in long-term debt, while total stockholders' equity also grew Condensed Consolidated Balance Sheets (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :---------------------------------- | :----------------------------- | :---------------------------- | | Total current assets | $1,317.2 | $1,286.0 | | Total assets | $2,783.5 | $2,770.5 | | Total current liabilities | $893.5 | $756.4 | | Long-term debt | $352.0 | $496.6 | | Total liabilities | $1,407.7 | $1,449.8 | | Total stockholders' equity | $1,375.8 | $1,320.7 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities increased slightly, while cash used in investing and financing activities decreased, leading to an overall increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $225.0 | $220.5 | | Net cash used in investing activities | $(44.5) | $(57.6) | | Net cash used in financing activities | $(171.7) | $(176.8) | | Increase (decrease) in cash and cash equivalents | $6.7 | $(13.9) | | Cash and cash equivalents, end of period | $193.8 | $179.4 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS%27%20EQUITY) Stockholders' equity increased from July 31, 2023, to January 31, 2024, primarily due to net earnings, partially offset by treasury stock acquisitions and dividends declared Condensed Consolidated Statements of Changes in Stockholders' Equity (in millions) | Metric | As of July 31, 2023 (in millions) | As of January 31, 2024 (in millions) | | :-------------------------------- | :-------------------------------- | :----------------------------------- | | Total Stockholders' Equity | $1,320.7 | $1,375.8 | | Net earnings | - | $190.8 | | Other comprehensive loss | - | $(16.7) | | Treasury stock acquired | - | $(87.1) | | Dividends declared | - | $(60.1) | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section provides detailed disclosures and explanations for the unaudited condensed consolidated financial statements, covering accounting policies, acquisitions, revenue, and various financial components [Note 1. Summary of Significant Accounting Policies](index=7&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) The financial statements are prepared in accordance with GAAP and Form 10-Q, with no material impact from recently adopted or unadopted ASUs - The Company adopted ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, in the first quarter of fiscal 2024, with **no impact** on its Condensed Consolidated Financial Statements[24](index=24&type=chunk) - New ASUs on Income Taxes (2023-09), Segment Reporting (2023-07), Disclosure Improvements (2023-06), and Fair Value Measurement (2022-03) are not expected to have a **material impact** on the Company's financial statements upon adoption[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Note 2. Acquisitions](index=8&type=section&id=Note%202.%20Acquisitions) In fiscal 2023, the Company acquired Univercells Technologies for **$147.2 million** and Isolere Bio, Inc. for **$62.4 million**, with no acquisitions in fiscal 2024 - In fiscal 2023, Donaldson acquired Univercells Technologies (UTEC) for **$147.2 million** and Isolere Bio, Inc. (Isolere) for **$62.4 million**, both integrated into the Life Sciences segment[30](index=30&type=chunk)[31](index=31&type=chunk) - The purchase price allocation for UTEC is preliminary, with **$95.8 million** assigned to goodwill and **$52.5 million** to intangible assets. Isolere's purchase accounting was finalized in Q1 fiscal 2024[30](index=30&type=chunk)[31](index=31&type=chunk) - Net sales from UTEC and Isolere were **immaterial** to the Consolidated Statements of Earnings for the three and six months ended January 31, 2024[30](index=30&type=chunk)[31](index=31&type=chunk) Acquisition Components (in millions) | Acquisition Component | 2023 (in millions) | | :-------------------- | :----------------- | | Intangible assets acquired | $97.0 | | Tangible assets, net | $10.4 | | Goodwill | $124.0 | | Aggregate purchase price | $231.4 | | Acquisitions, net of cash acquired | $209.6 | [Note 3. Revenue](index=9&type=section&id=Note%203.%20Revenue) Net sales increased across all geographic regions for both periods, with the U.S. and Canada being the largest contributor Net Sales by Region (in millions) | Region | Three Months Ended Jan 31, 2024 (in millions) | Three Months Ended Jan 31, 2023 (in millions) | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | U.S. and Canada | $376.9 | $346.4 | $758.4 | $721.7 | | EMEA | $251.6 | $252.1 | $485.9 | $478.8 | | APAC | $151.0 | $142.4 | $291.1 | $293.0 | | LATAM | $97.2 | $87.4 | $187.6 | $182.1 | | Total net sales | $876.7 | $828.3 | $1,723.0 | $1,675.6 | Contract Assets and Liabilities (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------- | :----------------------------- | :---------------------------- | | Contract assets | $11.2 | $13.3 | | Contract liabilities | $29.7 | $25.3 | [Note 4. Inventories, Net](index=9&type=section&id=Note%204.%20Inventories%2C%20Net) Total inventories, net, increased to **$433.4 million** as of January 31, 2024, with increases across all components Inventories, Net (in millions) | Inventory Component | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :------------------ | :----------------------------- | :---------------------------- | | Raw materials | $160.9 | $155.1 | | Work in process | $57.3 | $50.9 | | Finished products | $215.2 | $212.1 | | Total inventories, net | $433.4 | $418.1 | [Note 5. Property, Plant and Equipment, Net](index=9&type=section&id=Note%205.%20Property%2C%20Plant%20and%20Equipment%2C%20Net) Net property, plant and equipment slightly decreased to **$647.0 million** due to higher accumulated depreciation and lower construction in progress Property, Plant and Equipment, Net (in millions) | Asset Component | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :---------------------- | :----------------------------- | :---------------------------- | | Land | $29.2 | $29.3 | | Buildings | $444.8 | $430.8 | | Machinery and equipment | $1,023.7 | $989.0 | | Computer software | $142.7 | $142.0 | | Construction in progress | $81.5 | $107.7 | | Less accumulated depreciation | $(1,074.9) | $(1,045.9) | | Total property, plant and equipment, net | $647.0 | $652.9 | [Note 6. Goodwill and Intangible Assets](index=10&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) Goodwill decreased slightly to **$475.9 million**, and intangible assets, net, decreased to **$179.4 million**, primarily due to amortization and foreign currency translation Goodwill by Segment (in millions) | Segment | Goodwill as of July 31, 2023 (in millions) | Goodwill as of January 31, 2024 (in millions) | | :---------------- | :--------------------------------------- | :------------------------------------------ | | Mobile Solutions | $25.5 | $25.4 | | Industrial Solutions | $289.1 | $287.3 | | Life Sciences | $166.5 | $163.2 | | Total | $481.1 | $475.9 | Intangible Assets, Net (in millions) | Intangible Asset Class | Net as of January 31, 2024 (in millions) | Net as of July 31, 2023 (in millions) | | :--------------------- | :--------------------------------------- | :------------------------------------ | | Customer relationships | $39.5 | $42.2 | | Patents | $26.4 | $27.1 | | Trademarks | $11.3 | $12.0 | | Technology | $99.6 | $103.4 | | Non-compete agreements | $2.6 | $3.4 | | Total intangible assets | $179.4 | $188.1 | - Intangible asset amortization expense increased to **$3.8 million** for the three months and **$7.8 million** for the six months ended January 31, 2024, from **$2.5 million** and **$5.1 million**, respectively, in the prior year[43](index=43&type=chunk) [Note 7. Long-Term Debt](index=11&type=section&id=Note%207.%20Long-Term%20Debt) The Company had **$40.0 million** outstanding on its **$500.0 million** revolving credit facility and was in compliance with all financial covenants - As of January 31, 2024, **$40.0 million** was outstanding on the Company's **$500.0 million** unsecured revolving credit facility, with **$452.5 million** available[44](index=44&type=chunk) - The Company was in compliance with all financial covenants related to its debt agreements as of January 31, 2024[44](index=44&type=chunk) [Note 8. Income Taxes](index=11&type=section&id=Note%208.%20Income%20Taxes) Gross unrecognized tax benefits were **$15.8 million**, with a potential **$4.0 million** decrease in uncertain tax positions within 12 months - Gross unrecognized tax benefits were **$15.8 million** and accrued interest and penalties were **$2.2 million** as of January 31, 2024[46](index=46&type=chunk) - The Company estimates a potential decrease of up to **$4.0 million** in uncertain tax positions within the next 12 months due to lapses in statutes of limitation[46](index=46&type=chunk) [Note 9. Earnings Per Share](index=12&type=section&id=Note%209.%20Earnings%20Per%20Share) Basic and diluted net EPS increased for both periods, reflecting higher net earnings and slightly fewer weighted average shares outstanding Earnings Per Share Data (in millions, except per share data) | Metric | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Six Months Ended Jan 31, 2024 | Six Months Ended Jan 31, 2023 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net earnings (in millions) | $98.7 | $86.0 | $190.8 | $173.2 | | Weighted average common shares – basic (in millions) | 120.5 | 121.7 | 120.7 | 122.2 | | Weighted average common shares – diluted (in millions) | 122.1 | 123.3 | 122.4 | 123.7 | | Net EPS – basic | $0.82 | $0.71 | $1.58 | $1.42 | | Net EPS – diluted | $0.81 | $0.70 | $1.56 | $1.40 | [Note 10. Stockholders' Equity](index=12&type=section&id=Note%2010.%20Stockholders%27%20Equity) The Board authorized a new stock repurchase plan for up to **12.0 million** shares, with fewer shares repurchased but higher dividends paid - In November 2023, the Board authorized the repurchase of up to **12.0 million** shares, replacing the previous plan. As of January 31, 2024, **11.8 million** shares remained authorized for repurchase[49](index=49&type=chunk) Treasury Stock Repurchases (in millions, except shares) | Metric | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :-------------------- | :------------------------------------------ | :------------------------------------------ | | Shares repurchased | 1.4 | 2.1 | | Cost of repurchases | $87.1 | $115.2 | Dividends Paid Per Share | Metric | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Six Months Ended Jan 31, 2024 | Six Months Ended Jan 31, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Dividends paid per share | $0.25 | $0.23 | $0.50 | $0.46 | [Note 11. Accumulated Other Comprehensive Loss](index=13&type=section&id=Note%2011.%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased to **$(189.2) million** due to foreign currency translation losses, partially offset by gains Accumulated Other Comprehensive Loss (3 Months Ended Jan 31, 2024, in millions) | Component | Balance as of Oct 31, 2023 (in millions) | Other comprehensive income (loss), net of tax (3 months) | Balance as of Jan 31, 2024 (in millions) | | :-------------------------- | :--------------------------------------- | :------------------------------------------------------- | :--------------------------------------- | | Foreign Currency Translation Adjustment | $(147.2) | $20.9 | $(126.3) | | Pension Benefits | $(66.2) | $(0.2) | $(66.4) | | Derivative Financial Instruments | $5.1 | $(1.6) | $3.5 | | Total | $(208.3) | $19.1 | $(189.2) | Accumulated Other Comprehensive Loss (6 Months Ended Jan 31, 2024, in millions) | Component | Balance as of July 31, 2023 (in millions) | Other comprehensive (loss) income, net of tax (6 months) | Balance as of Jan 31, 2024 (in millions) | | :-------------------------- | :---------------------------------------- | :------------------------------------------------------- | :--------------------------------------- | | Foreign Currency Translation Adjustment | $(109.6) | $(16.7) | $(126.3) | | Pension Benefits | $(67.2) | $0.8 | $(66.4) | | Derivative Financial Instruments | $4.3 | $(0.8) | $3.5 | | Total | $(172.5) | $(16.7) | $(189.2) | [Note 12. Stock-Based Compensation](index=14&type=section&id=Note%2012.%20Stock-Based%20Compensation) Stock-based compensation expense increased for both options and performance-based awards, with higher weighted average fair value for options granted Stock-Based Compensation Expense (in millions) | Metric | Three Months Ended Jan 31, 2024 (in millions) | Three Months Ended Jan 31, 2023 (in millions) | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Pretax stock-based compensation expense (options) | $2.0 | $1.8 | $10.5 | $9.3 | | Pretax performance-based awards expense | $1.5 | $1.7 | $3.1 | $3.5 | - The weighted average fair value for options granted increased to **$18.98** per share during the six months ended January 31, 2024, from **$15.62** per share in the prior year[58](index=58&type=chunk) Stock-Based Award Activity (as of Jan 31, 2024) | Stock-Based Award Activity | Options Outstanding (Jan 31, 2024) | Performance Shares Outstanding (Jan 31, 2024) | | :------------------------- | :--------------------------------- | :-------------------------------------------- | | Balance outstanding as of July 31, 2023 | 6,777,407 | 194,761 | | Granted | 804,398 | 114,800 | | Exercised/Vested | (559,697) | — | | Expired/Forfeited | (29,565) | — | | Balance outstanding as of January 31, 2024 | 6,992,543 | 309,561 | [Note 13. Employee Benefit Plans](index=15&type=section&id=Note%2013.%20Employee%20Benefit%20Plans) Net periodic pension costs increased to **$0.3 million** for three months and **$0.5 million** for six months due to higher interest costs Net Periodic Pension Costs (in millions) | Metric | Three Months Ended Jan 31, 2024 (in millions) | Three Months Ended Jan 31, 2023 (in millions) | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Service cost | $1.2 | $1.6 | $2.4 | $3.2 | | Interest cost | $5.1 | $4.2 | $10.2 | $8.3 | | Expected return on assets | $(6.4) | $(6.4) | $(12.9) | $(12.7) | | Actuarial loss amortization | $0.4 | $0.5 | $0.8 | $1.1 | | Net periodic pension costs | $0.3 | $0.0 | $0.5 | $0.0 | [Note 14. Derivative Instruments and Hedging](index=16&type=section&id=Note%2014.%20Derivative%20Instruments%20and%20Hedging) The Company uses foreign currency forward contracts and net investment hedges to manage risk, with **€80 million** in net investment hedges - The Company uses foreign currency forward contracts and net investment hedges to manage foreign currency risk, not for trading or speculative purposes[64](index=64&type=chunk)[66](index=66&type=chunk) Derivative Notional Amounts (in millions) | Derivative Type | Notional Amount as of Jan 31, 2024 (in millions) | Notional Amount as of July 31, 2023 (in millions) | | :------------------------------------------------ | :----------------------------------------------- | :------------------------------------------------ | | Foreign currency forward contracts (designated as hedges) | $53.0 | $84.9 | | Foreign currency forward contracts (not designated as hedges) | $148.0 | $147.5 | | Net investment hedges (Euro equivalent) | €80.0 ($88.8) | €80.0 ($88.8) | [Note 15. Fair Value Measurements](index=17&type=section&id=Note%2015.%20Fair%20Value%20Measurements) Fair value measurements are classified into Level 1 for short-term instruments, Level 2 for debt and derivatives, and Level 3 for equity investments and contingent consideration - Short-term financial instruments (cash, receivables, short-term borrowings, payables) are classified as **Level 1** fair value measurements[74](index=74&type=chunk) - Long-term debt and derivative contracts (foreign currency forward contracts, net investment hedges) are classified as **Level 2** fair value measurements, using observable market parameters[75](index=75&type=chunk)[77](index=77&type=chunk) - Equity method investments and contingent consideration liabilities are classified as **Level 3** fair value measurements, relying on significant unobservable inputs[76](index=76&type=chunk)[80](index=80&type=chunk) Fair Value of Derivative Instruments (in millions) | Derivative Type | Assets (Jan 31, 2024, in millions) | Assets (July 31, 2023, in millions) | Liabilities (Jan 31, 2024, in millions) | Liabilities (July 31, 2023, in millions) | | :------------------------------------------------ | :--------------------------------- | :---------------------------------- | :-------------------------------------- | :--------------------------------------- | | Designated as hedging instruments | $4.2 | $4.2 | $0.9 | $0.1 | | Not designated as hedging instruments | $0.6 | $0.7 | $0.3 | $1.4 | | Total | $4.8 | $4.9 | $1.2 | $1.5 | Contingent Consideration Liability (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Fair value of contingent consideration liability | $26.0 | $25.0 | | Maximum potential payout of contingent consideration | $30.7 | $30.7 | [Note 16. Guarantees](index=18&type=section&id=Note%2016.%20Guarantees) The Company has **$7.5 million** in standby letters of credit and guarantees half of AFSI's **$55.4 million** outstanding debt Contingent Liability for Standby Letters of Credit (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------------------------------------------------------------------- | :----------------------------- | :---------------------------- | | Contingent liability for standby letters of credit issued under revolving credit facility | $7.5 | $7.5 | - The Company guarantees half of the **$55.4 million** outstanding debt of its joint venture, AFSI, as of January 31, 2024[84](index=84&type=chunk) Earnings from AFSI (in millions) | Metric | Three Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | | :-------------------- | :-------------------------------------------- | :------------------------------------------ | | Earnings from AFSI | $2.5 | $4.2 | [Note 17. Commitments and Contingencies](index=19&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) Liabilities for claims and litigation were not material, with contingent compensation and consideration liabilities totaling **$1.7 million** and **$24.3 million** respectively - Liabilities recorded for claims and litigation were **not material** to the Company's financial position, results of operations, or liquidity[86](index=86&type=chunk) Contingent Liabilities (in millions) | Contingency Type | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Contingent compensation arrangement liability (Purilogics) | $1.7 | $1.1 | | Maximum payout (Purilogics contingent compensation) | $3.0 | $3.0 | | Contingent consideration liability (Purilogics) | $24.3 | $23.2 | | Maximum payout (Purilogics contingent consideration) | $29.0 | $29.0 | | Other acquisition contingent consideration liability | $1.7 | $1.7 | [Note 18. Segment Reporting](index=19&type=section&id=Note%2018.%20Segment%20Reporting) The Company operates through Mobile Solutions, Industrial Solutions, and Life Sciences segments, with Mobile and Industrial showing growth, while Life Sciences reported losses - The Company's reportable segments are Mobile Solutions, Industrial Solutions, and Life Sciences, with Corporate and Unallocated covering non-allocable expenses[93](index=93&type=chunk) Net Sales by Segment (in millions) | Segment | Net Sales (3 Months Ended Jan 31, 2024, in millions) | Net Sales (3 Months Ended Jan 31, 2023, in millions) | Net Sales (6 Months Ended Jan 31, 2024, in millions) | Net Sales (6 Months Ended Jan 31, 2023, in millions) | | :------------------ | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Mobile Solutions | $550.3 | $522.5 | $1,090.3 | $1,077.4 | | Industrial Solutions | $263.4 | $246.4 | $509.6 | $476.0 | | Life Sciences | $63.0 | $59.4 | $123.1 | $122.2 | | Total Company | $876.7 | $828.3 | $1,723.0 | $1,675.6 | Earnings (Loss) Before Income Taxes by Segment (in millions) | Segment | Earnings (Loss) Before Income Taxes (3 Months Ended Jan 31, 2024, in millions) | Earnings (Loss) Before Income Taxes (3 Months Ended Jan 31, 2023, in millions) | Earnings (Loss) Before Income Taxes (6 Months Ended Jan 31, 2024, in millions) | Earnings (Loss) Before Income Taxes (6 Months Ended Jan 31, 2023, in millions) | | :------------------ | :------------------------------------------------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | | Mobile Solutions | $99.2 | $78.6 | $191.4 | $158.9 | | Industrial Solutions | $47.4 | $46.3 | $90.7 | $83.9 | | Life Sciences | $(5.8) | $6.3 | $(10.0) | $17.1 | | Corporate and unallocated | $(11.8) | $(17.9) | $(20.2) | $(30.1) | | Total Company | $129.0 | $113.3 | $251.9 | $229.8 | Net Sales by Business Unit (in millions) | Business Unit | Net Sales (3 Months Ended Jan 31, 2024, in millions) | Net Sales (3 Months Ended Jan 31, 2023, in millions) | Net Sales (6 Months Ended Jan 31, 2024, in millions) | Net Sales (6 Months Ended Jan 31, 2023, in millions) | | :-------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Mobile Solutions segment | $550.3 | $522.5 | $1,090.3 | $1,077.4 | | Off-Road | $91.9 | $106.2 | $186.6 | $209.8 | | On-Road | $33.5 | $34.5 | $71.3 | $70.5 | | Aftermarket | $424.9 | $381.8 | $832.4 | $797.1 | | Industrial Solutions segment | $263.4 | $246.4 | $509.6 | $476.0 | | Industrial Filtration Solutions | $224.5 | $211.8 | $435.1 | $407.8 | | Aerospace and Defense | $38.9 | $34.6 | $74.5 | $68.2 | | Life Sciences segment | $63.0 | $59.4 | $123.1 | $122.2 | [Note 19. Restructuring and Other Charges](index=21&type=section&id=Note%2019.%20Restructuring%20and%20Other%20Charges) No material restructuring charges were recorded in fiscal 2024, but **$7.6 million** and **$9.3 million** in charges were recorded in fiscal 2023 - No material restructuring or other charges were recorded for the three and six months ended January 31, 2024[100](index=100&type=chunk) - In fiscal 2023, the Company recorded **$7.6 million** in charges for an organizational redesign and an additional **$9.3 million** for severance, other redesign costs, and exiting a lower-margin customer program[101](index=101&type=chunk)[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, liquidity, and capital resources, detailing consolidated and segment-specific results [Overview](index=21&type=section&id=Overview) Donaldson Company, Inc. is a global leader in filtration products and solutions, with a diversified business model mitigating market weaknesses - Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets[103](index=103&type=chunk) - The Company's operating segments are Mobile Solutions, Industrial Solutions, and Life Sciences, offering diverse products from replacement filters to bioprocessing equipment[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Diversification across diesel engine end markets, global end markets, technology, and OEM/replacement parts customers helps limit the impact of weakness in any single product line, market, or geography[107](index=107&type=chunk) [Consolidated Results of Operations](index=22&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated net sales, gross profit, operating income, and net earnings increased for both periods, driven by pricing, volume, and lower costs [Three months ended January 31, 2024 compared with three months ended January 31, 2023](index=22&type=section&id=Three%20months%20ended%20January%2031%2C%202024%20compared%20with%20three%20months%20ended%20January%2031%2C%202023) Net sales increased by **5.8%** to **$876.7 million**, with gross margin improving to **35.2%**, and diluted EPS rising by **15.9%** to **$0.81** Consolidated Results of Operations (Three Months Ended Jan 31, in millions, except per share data) | Metric | Jan 31, 2024 (in millions) | % of net sales (2024) | Jan 31, 2023 (in millions) | % of net sales (2023) | | :-------------------------- | :------------------------- | :-------------------- | :------------------------- | :-------------------- | | Net sales | $876.7 | | $828.3 | | | Gross profit | $308.6 | 35.2% | $284.4 | 34.3% | | Operating income | $129.7 | 14.8% | $116.3 | 14.0% | | Net earnings | $98.7 | 11.3% | $86.0 | 10.4% | | Net EPS - diluted | $0.81 | | $0.70 | | - Net sales increased by **$48.4 million** (**5.8%**), with foreign currency translation contributing **$4.8 million**. Growth was primarily driven by volume increases and higher pricing[110](index=110&type=chunk) - Gross margin as a percentage of net sales increased from **34.3%** to **35.2%**, primarily due to higher pricing and lower freight and select material costs[111](index=111&type=chunk) - Selling, general and administrative expenses increased by **$7.2 million** (**4.9%**), but decreased as a percentage of net sales (**17.9%** from **18.1%**), due to lower non-recurring costs, partially offset by increased headcount and acquired Life Sciences business expenses[112](index=112&type=chunk) - Research and development expenses increased to **$22.1 million** (**2.5%** of net sales) from **$18.5 million** (**2.2%** of net sales), mainly due to increased headcount[113](index=113&type=chunk) - Other income, net, increased by **$3.3 million** to **$4.9 million**, driven by higher joint venture earnings and lower foreign currency losses[115](index=115&type=chunk) - The effective tax rate decreased to **23.5%** from **24.1%** due to a favorable shift in global earnings mix and increased foreign tax credit benefits[116](index=116&type=chunk) [Six months ended January 31, 2024 compared with six months ended January 31, 2023](index=24&type=section&id=Six%20months%20ended%20January%2031%2C%202024%20compared%20with%20six%20months%20ended%20January%2031%2C%202023) Net sales increased by **2.8%** to **$1,723.0 million**, with gross margin improving to **35.4%**, and diluted EPS rising by **11.4%** to **$1.56** Consolidated Results of Operations (Six Months Ended Jan 31, in millions, except per share data) | Metric | Jan 31, 2024 (in millions) | % of net sales (2024) | Jan 31, 2023 (in millions) | % of net sales (2023) | | :-------------------------- | :------------------------- | :-------------------- | :------------------------- | :-------------------- | | Net sales | $1,723.0 | | $1,675.6 | | | Gross profit | $609.5 | 35.4% | $571.6 | 34.1% | | Operating income | $254.3 | 14.8% | $235.6 | 14.1% | | Net earnings | $190.8 | 11.1% | $173.2 | 10.3% | | Net EPS - diluted | $1.56 | | $1.40 | | - Net sales increased by **$47.4 million** (**2.8%**), with foreign currency translation contributing **$17.2 million**. Growth was primarily from higher pricing, volume growth, and positive foreign currency impact[120](index=120&type=chunk) - Gross margin as a percentage of net sales increased from **34.1%** to **35.4%**, primarily due to pricing benefits and lower freight and certain material costs[121](index=121&type=chunk) - Selling, general and administrative expenses increased by **$13.0 million** (**4.4%**), and as a percentage of net sales (**18.1%** from **17.8%**), primarily due to increased headcount and incremental expenses from acquired Life Sciences businesses[122](index=122&type=chunk) - Research and development expenses increased to **$43.4 million** (**2.5%** of net sales) from **$37.2 million** (**2.2%** of net sales), mainly due to higher headcount[123](index=123&type=chunk) - Other income, net, increased by **$5.3 million** to **$8.7 million**, driven by higher joint venture earnings and lower foreign currency losses[125](index=125&type=chunk) - The effective tax rate decreased to **24.2%** from **24.7%** due to a favorable shift in global earnings mix and increased foreign tax credit benefits[126](index=126&type=chunk) [Segment Results of Operations](index=25&type=section&id=Segment%20Results%20of%20Operations) This section details the performance of Mobile Solutions, Industrial Solutions, and Life Sciences segments, highlighting sales drivers and changes in earnings before income taxes [Mobile Solutions Segment](index=26&type=section&id=Mobile%20Solutions%20Segment) Net sales increased by **5.3%** (3 months) and **1.2%** (6 months) driven by Aftermarket sales, with earnings before income taxes significantly improving Mobile Solutions Segment Performance (in millions) | Metric | Net Sales (3 Months Ended Jan 31, 2024, in millions) | Net Sales (3 Months Ended Jan 31, 2023, in millions) | Net Sales (6 Months Ended Jan 31, 2024, in millions) | Net Sales (6 Months Ended Jan 31, 2023, in millions) | | :-------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Off-Road | $91.9 | $106.2 | $186.6 | $209.8 | | On-Road | $33.5 | $34.5 | $71.3 | $70.5 | | Aftermarket | $424.9 | $381.8 | $832.4 | $797.1 | | Total Mobile Solutions segment | $550.3 | $522.5 | $1,090.3 | $1,077.4 | | Mobile Solutions segment earnings before income taxes | $99.2 | $78.6 | $191.4 | $158.9 | | Mobile Solutions segment earnings before income taxes % of net sales | 18.0% | 15.0% | 17.6% | 14.7% | - Aftermarket net sales increased by **$43.1 million** (3 months) and **$35.3 million** (6 months), driven by market share gains, strong end market demand, and pricing benefits[132](index=132&type=chunk)[135](index=135&type=chunk) - Off-Road net sales decreased by **$14.3 million** (3 months) and **$23.2 million** (6 months), primarily due to weak agriculture end market conditions[132](index=132&type=chunk)[135](index=135&type=chunk) - Earnings before income taxes as a percentage of net sales increased to **18.0%** (3 months) and **17.6%** (6 months), driven by favorable product mix, pricing actions, and lower freight/input costs, partially offset by higher labor and overhead[133](index=133&type=chunk)[136](index=136&type=chunk) [Industrial Solutions Segment](index=26&type=section&id=Industrial%20Solutions%20Segment) Net sales grew by **6.9%** (3 months) and **7.0%** (6 months) due to higher volume in power generation, dust collection, and aerospace and defense Industrial Solutions Segment Performance (in millions) | Metric | Net Sales (3 Months Ended Jan 31, 2024, in millions) | Net Sales (3 Months Ended Jan 31, 2023, in millions) | Net Sales (6 Months Ended Jan 31, 2024, in millions) | Net Sales (6 Months Ended Jan 31, 2023, in millions) | | :-------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Industrial Filtration Solutions (IFS) | $224.5 | $211.8 | $435.1 | $407.8 | | Aerospace and Defense | $38.9 | $34.6 | $74.5 | $68.2 | | Total Industrial Solutions segment | $263.4 | $246.4 | $509.6 | $476.0 | | Industrial Solutions segment earnings before income taxes | $47.4 | $46.3 | $90.7 | $83.9 | | Industrial Solutions segment earnings before income taxes % of net sales | 18.0% | 18.8% | 17.8% | 17.6% | - IFS net sales increased by **$12.7 million** (3 months) and **$27.3 million** (6 months), reflecting higher sales volume in power generation and industrial dust collection[139](index=139&type=chunk)[142](index=142&type=chunk) - Aerospace and Defense net sales increased by **$4.3 million** (3 months) and **$6.3 million** (6 months) due to ongoing strength in the defense end market[139](index=139&type=chunk)[142](index=142&type=chunk) - Earnings before income taxes as a percentage of net sales decreased to **18.0%** (3 months) due to unfavorable product mix, but increased to **17.8%** (6 months) due to leveraging operating expenses, operational efficiencies, and lower freight costs[140](index=140&type=chunk)[143](index=143&type=chunk) [Life Sciences Segment](index=27&type=section&id=Life%20Sciences%20Segment) Net sales increased by **6.0%** (3 months) but only **0.8%** (6 months), with the segment reporting losses due to investments in acquired businesses Life Sciences Segment Performance (in millions) | Metric | Net Sales (3 Months Ended Jan 31, 2024, in millions) | Net Sales (3 Months Ended Jan 31, 2023, in millions) | Net Sales (6 Months Ended Jan 31, 2024, in millions) | Net Sales (6 Months Ended Jan 31, 2023, in millions) | | :-------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Life Sciences segment net sales | $63.0 | $59.4 | $123.1 | $122.2 | | Life Sciences segment (losses) earnings before income taxes | $(5.8) | $6.3 | $(10.0) | $17.1 | | Life Sciences segment (losses) earnings before income taxes % of net sales | (9.2)% | 10.6% | (8.1)% | 14.0% | - Net sales for the Life Sciences segment increased by **6.0%** (3 months) and **0.8%** (6 months), primarily driven by a recovery in market demand for products in the disk drive business[145](index=145&type=chunk)[147](index=147&type=chunk) - The segment reported losses before income taxes of **$5.8 million** (3 months) and **$10.0 million** (6 months), a decrease from prior year earnings, due to expected investments to scale up recently acquired businesses[146](index=146&type=chunk)[148](index=148&type=chunk) [Liquidity, Capital Resources and Financial Condition](index=28&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Financial%20Condition) The Company's liquidity is strong, driven by cash from operations and available credit, with decreased total debt and sufficient funds for future needs [Liquidity](index=28&type=section&id=Liquidity) The Company's primary liquidity source is cash from operating activities, supplemented by credit facilities, sufficient for growth and acquisitions - The Company generates substantial cash from operating activities as its primary source of liquidity[149](index=149&type=chunk) - Sufficient liquidity is available to fund growth through reinvestment in existing businesses and strategic acquisitions[149](index=149&type=chunk) [Cash Flow Summary](index=28&type=section&id=Cash%20Flow%20Summary) Net cash from operating activities increased, while cash used in investing and financing activities decreased for the six months ended January 31, 2024 Cash Flow Summary (Six Months Ended Jan 31, in millions) | Cash Flow Activity | Six Months Ended Jan 31, 2024 (in millions) | Six Months Ended Jan 31, 2023 (in millions) | $ Change (in millions) | | :------------------------- | :------------------------------------------ | :------------------------------------------ | :--------------------- | | Operating activities | $225.0 | $220.5 | $4.5 | | Investing activities | $(44.5) | $(57.6) | $13.1 | | Financing activities | $(171.7) | $(176.8) | $5.1 | | Effect of exchange rate changes on cash | $(2.1) | $0.0 | $(2.1) | | Increase (decrease) in cash and cash equivalents | $6.7 | $(13.9) | $20.6 | [Operating Activities](index=28&type=section&id=Operating%20Activities) Cash provided by operating activities increased by **$4.5 million** to **$225.0 million** for the six months ended January 31, 2024, primarily due to higher earnings - Cash provided by operating activities increased by **$4.5 million** to **$225.0 million** for the six months ended January 31, 2024, driven by higher earnings[151](index=151&type=chunk) [Investing Activities](index=28&type=section&id=Investing%20Activities) Cash used in investing activities decreased by **$13.1 million** to **$44.5 million** for the six months ended January 31, 2024, mainly due to capital investment timing - Cash used in investing activities decreased by **$13.1 million** to **$44.5 million** for the six months ended January 31, 2024, primarily due to the timing of capital investments[152](index=152&type=chunk) [Financing Activities](index=28&type=section&id=Financing%20Activities) Cash used in financing activities decreased by **$5.1 million** to **$171.7 million** due to lower treasury stock purchases, partially offset by higher net debt repayments - Cash used in financing activities decreased by **$5.1 million** to **$171.7 million** for the six months ended January 31, 2024[153](index=153&type=chunk) - The decrease was primarily driven by lower treasury stock purchases (**$86.6 million** vs. **$115.2 million**), partially offset by a higher net debt repayment (**$37.4 million** vs. **$24.7 million**)[153](index=153&type=chunk)[154](index=154&type=chunk) - Dividends paid increased to **$60.3 million** from **$56.2 million** for the six months ended January 31, 2024[154](index=154&type=chunk) [Capital Resources](index=28&type=section&id=Capital%20Resources) Cash and cash equivalents increased to **$193.8 million**, with **$642.2 million** available under credit facilities, deemed sufficient for future cash requirements Cash and Cash Equivalents (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------------- | :----------------------------- | :---------------------------- | | Cash and cash equivalents | $193.8 | $187.1 | - The Company has **$642.2 million** available for borrowing under existing credit facilities as of January 31, 2024, including **$452.5 million** on its **$500.0 million** unsecured revolving credit facility[155](index=155&type=chunk) - Management believes current liquidity is sufficient to meet cash requirements for the next 12 months and beyond, including working capital, debt service, capital expenditures, dividends, share repurchases, and potential acquisitions[156](index=156&type=chunk) [Financial Condition](index=29&type=section&id=Financial%20Condition) Total debt as a percentage of total capitalization decreased to **30.9%**, with long-term debt decreasing by **$57.9 million**, and working capital metrics showing slight changes - Total debt represented **30.9%** of total capitalization as of January 31, 2024, down from **33.2%** as of July 31, 2023[157](index=157&type=chunk) - Long-term debt outstanding decreased by **$57.9 million** to **$563.7 million** as of January 31, 2024, primarily due to a repayment on the unsecured revolving credit facility[158](index=158&type=chunk) Working Capital Metrics | Working Capital Metric | January 31, 2024 | July 31, 2023 | | :--------------------- | :--------------- | :------------ | | Days sales outstanding | 62 days | 64 days | | Days inventory on hand | 70 days | 69 days | | Inventory turns | 5.2 times | 5.3 times | | Days payable outstanding | 53 days | 49 days | [Off-Balance Sheet Arrangements](index=29&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company guarantees **50%** of certain debts of its unconsolidated joint venture, AFSI, as detailed in Note 16 - The Company guarantees **50%** of certain debts of its joint venture, AFSI[163](index=163&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) No material changes to the Company's critical accounting estimates have occurred since the Annual Report on Form 10-K for fiscal year ended July 31, 2023 - No material changes to critical accounting estimates have occurred since the fiscal year ended July 31, 2023[164](index=164&type=chunk) [New Accounting Standards Not Yet Adopted](index=29&type=section&id=New%20Accounting%20Standards%20Not%20Yet%20Adopted) Information regarding new accounting standards not yet adopted is provided in Note 1 of the Condensed Consolidated Financial Statements - Refer to Note 1 for details on new accounting standards not yet adopted[165](index=165&type=chunk) [Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995](index=29&type=section&id=Safe%20Harbor%20Statement%20Under%20the%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) This section outlines the Company's forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results or anticipated outcomes[166](index=166&type=chunk)[167](index=167&type=chunk) - Key risk factors include challenges in global operations, economic and geopolitical conditions, raw material availability, demand fluctuations, labor issues, competitive markets, disruptive technologies, and foreign currency fluctuations[167](index=167&type=chunk) - The Company does not undertake to publicly update or revise any forward-looking statements unless required by law[167](index=167&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to market risks from foreign currency exchange rates, interest rates, and commodity prices, which it manages through various strategies - The Company's market risk includes potential losses from adverse changes in foreign currency exchange rates, interest rates, and commodity prices[168](index=168&type=chunk) - The overall weaker U.S. dollar had a **positive impact** on international net sales (**$17.2 million** increase) and net earnings (**$1.9 million** increase) for the six months ended January 31, 2024[170](index=170&type=chunk) [Derivative Fair Value Measurements](index=30&type=section&id=Derivative%20Fair%20Value%20Measurements) The Company uses derivative instruments, including foreign currency forward contracts and net investment hedges, to manage foreign currency risk, not for speculative purposes - The Company uses derivative instruments (foreign currency forward contracts and net investment hedges) to manage foreign currency risk, not for trading or speculative purposes[171](index=171&type=chunk) [Foreign Currency Forward Contracts - Cash Flow Hedges and Derivatives Not Designated as Hedging Instruments](index=30&type=section&id=Foreign%20Currency%20Forward%20Contracts%20-%20Cash%20Flow%20Hedges%20and%20Derivatives%20Not%20Designated%20as%20Hedging%20Instruments) The Company uses foreign currency forward contracts to manage exposure to local currency fluctuations from foreign purchases and sales. Designated hedges totaled **$53.0 million**, and non-designated hedges totaled **$148.0 million** as of January 31, 2024 - Foreign currency forward contracts are used to manage exposures from foreign purchases and sales, generally maturing in 12 months or less[172](index=172&type=chunk) Foreign Currency Forward Contracts Notional Amounts (in millions) | Derivative Type | Notional Amount as of Jan 31, 2024 (in millions) | Notional Amount as of July 31, 2023 (in millions) | | :------------------------------------------------ | :----------------------------------------------- | :------------------------------------------------ | | Foreign currency forward contracts (designated as hedges) | $53.0 | $84.9 | | Foreign currency forward contracts (not designated as hedges) | $148.0 | $147.5 | [Net Investment Hedges](index=30&type=section&id=Net%20Investment%20Hedges) The Company uses fixed-to-fixed cross-currency swap agreements to hedge foreign currency exposure for its European operations, with a total notional amount of **€80 million** (**$88.8 million**) as of January 31, 2024. A **10%** appreciation of the U.S. dollar against the Euro would result in a **$7.9 million** net gain - Fixed-to-fixed cross-currency swap agreements are used to hedge foreign currency exchange rate movements for European operations[173](index=173&type=chunk) - The total notional amount of net investment hedges was **€80 million** (**$88.8 million**) as of January 31, 2024, with maturities ranging from 2027 to 2029[173](index=173&type=chunk) - A hypothetical **10%** appreciation of the U.S. dollar against the Euro would result in a net gain of **$7.9 million** in the fair value of these contracts[174](index=174&type=chunk) [Interest Rates](index=31&type=section&id=Interest%20Rates) Interest rate risk stems from variable-rate debt; a **0.5 percentage point** increase in rates would increase interest expense and income by **$0.5 million** - The Company's exposure to interest rate changes primarily relates to variable-rate debt, including **$40.0 million** on its revolving credit facility, **€80.0 million** (**$86.7 million**) variable rate term loan, and **¥2.0 billion** (**$13.5 million**) variable rate senior notes[175](index=175&type=chunk) - A hypothetical **0.5 percentage point** increase in short-term interest rates would increase interest expense by approximately **$0.5 million** for the six months ended January 31, 2024[175](index=175&type=chunk) - A hypothetical **0.5 percentage point** increase in yields would increase interest income by approximately **$0.5 million** for the six months ended January 31, 2024[176](index=176&type=chunk) [Commodity Prices](index=31&type=section&id=Commodity%20Prices) The Company is exposed to fluctuating raw material prices and mitigates risk through supply arrangements, pricing, and cost reduction initiatives - The Company is exposed to market risk from fluctuating prices of purchased commodity raw materials, including steel, filter media, and petrochemical-based products[177](index=177&type=chunk) - Strategies to mitigate commodity price risk include selective supply arrangements, price increases to customers, and cost reduction initiatives (material substitution, process improvement, product redesigns)[177](index=177&type=chunk) [Bankers' Acceptance Notes](index=31&type=section&id=Bankers%27%20Acceptance%20Notes) The Company's APAC subsidiaries accept bankers' acceptance notes from customers, which totaled **$14.8 million** as of January 31, 2024 - The Company's subsidiaries in APAC accept bankers' acceptance notes from customers, which are included in accounts receivable[178](index=178&type=chunk) Bankers' Acceptance Notes (in millions) | Metric | January 31, 2024 (in millions) | July 31, 2023 (in millions) | | :-------------------------- | :----------------------------- | :---------------------------- | | Bankers' acceptance notes | $14.8 | $13.2 | [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of January 31, 2024 - The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of January 31, 2024[179](index=179&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to the Company's internal control over financial reporting occurred during the fiscal quarter ended January 31, 2024 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended January 31, 2024[180](index=180&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Liabilities recorded for claims and litigation were not material, and it is remote that settlements will materially exceed accrued amounts - Liabilities recorded for claims or litigation were **not material** to the Company's financial position, results of operations, or liquidity[182](index=182&type=chunk) - The Company believes it is **remote** that the settlement of any currently identified claims or litigation will materially exceed accrued amounts[182](index=182&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) Global operations involve inherent risks and uncertainties that could adversely affect the Company's business, as detailed in its Annual Report on Form 10-K - Inherent risks and uncertainties associated with global operations could adversely affect the Company's business, reputation, financial condition, or results of operations[183](index=183&type=chunk) - A comprehensive list of risk factors is outlined in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2023[183](index=183&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board authorized a new stock repurchase plan for up to **12.0 million** shares, with **603,501** shares repurchased during the quarter - On November 17, 2023, the Board of Directors authorized the repurchase of up to **12.0 million** shares of common stock, replacing the previous plan[184](index=184&type=chunk) Shares Repurchased (Three Months Ended Jan 31, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | November 1 - November 30, 2023 | 400,000 | $59.21 | | December 1 - December 31, 2023 | 8,004 | $61.86 | | January 1 - January 31, 2024 | 195,497 | $64.23 | | Total | 603,501 | $60.87 | - As of January 31, 2024, the Company had remaining authorization to repurchase **11.8 million** shares under the November 2023 plan[184](index=184&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended January 31, 2024 - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended January 31, 2024[187](index=187&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, organizational documents, stock incentive plans, and financial information in iXBRL - Exhibits include certifications (31-A, 31-B, 32), organizational documents (Restated Certificate of Incorporation, Amended and Restated Bylaws), the 2019 Master Stock Incentive Plan, and financial information in iXBRL format[188](index=188&type=chunk)

Donaldson Company, Inc. (DCI) reported second-quarter fiscal 2024 (ended Jan 31, 2024) adjusted earnings of 81 cents per share, which surpassed the Zacks Consensus Estimate of 73 cents. The bottom line increased 15.9% year over year.Revenue ResultsIn the fiscal second quarter, total revenues of $876.7 million outperformed the Zacks Consensus Estimate of $861 million. The top line increased 5.8% (up 5.3% at constant currency) in the reported quarter, driven by volume growth and benefits of pricing actions.Re ...

Investors interested in Industrial Products stocks should always be looking to find the best-performing companies in the group. Has Donaldson (DCI) been one of those stocks this year? A quick glance at the company's year-to-date performance in comparison to the rest of the Industrial Products sector should help us answer this question.Donaldson is a member of the Industrial Products sector. This group includes 227 individual stocks and currently holds a Zacks Sector Rank of #3. The Zacks Sector Rank conside ...

Financial Data and Key Metrics Changes - Sales increased by 6% year-over-year to $877 million, driven by volume growth and pricing [5][33] - Operating income rose by 3%, with EPS of $0.81 reflecting an 8% increase year-over-year [5][13] - Gross margin improved to 35.2%, a 70 basis point increase compared to the previous year [5] - Operating margin guidance was raised to a record level of 15.0% to 15.4%, representing a 60 basis point year-over-year improvement [11] Business Line Data and Key Metrics Changes - In Mobile Solutions, total sales were $550 million, a 5% increase, with Aftermarket sales up 11% to $425 million [36][46] - Life Sciences segment sales were $63 million, a 6% year-over-year increase, driven by a rebound in Disk Drive performance [45] - Industrial Solutions sales increased by 7% to $263 million, with IFS sales growing by 6% [44] Market Data and Key Metrics Changes - The company expects Industrial Solutions sales to increase between 3% and 7%, with IFS and Aerospace and Defense sales forecasted to grow mid-single digits [9] - Life Sciences sales are anticipated to increase approximately 20%, with significant growth expected in the second half of the year [10] - The company noted challenges in the agricultural markets and in China, impacting the On-Road segment [49][51] Company Strategy and Development Direction - The company remains committed to reinvesting in its business, particularly in Life Sciences and industrial services, with a strong M&A pipeline [15][58] - The focus is on achieving Investor Day targets for operating margin and continuing to build a robust Life Sciences segment [18][78] - The company is also dedicated to returning value to shareholders through dividends and share repurchases [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal 2024 targets, with expectations for record sales and profitability [45][52] - The company is experiencing a return to growth in its Disk Drive business and anticipates continued improvement in Food and Beverage segments [10][34] - Management acknowledged ongoing macroeconomic challenges but emphasized strong demand in certain segments [34][49] Other Important Information - The company plans to maintain a capital expenditure forecast of $95 million to $110 million, focusing on growth investments [14] - R&D investments are expected to increase by double digits this fiscal year, supporting technology-led filtration advancements [35] - The company reported a net debt-to-EBITDA ratio of 0.7x, indicating a strong balance sheet [48] Q&A Session Summary Question: Insights on Life Sciences ramp-up in fiscal '24 - Management indicated that the ramp-up in Life Sciences is supported by backlogs and large projects expected to contribute in the second half [25][23] Question: M&A pipeline and opportunities - The company confirmed a robust M&A pipeline focused on Life Sciences and industrial services, with ongoing integration efforts [58] Question: Pricing discussions and inflation impact - Management noted that pricing discussions remain stable despite material inflation, with a focus on maintaining fair relationships with customers [72][79] Question: Future profitability and margin expectations - Management expects gross margins in the back half to remain flat compared to the first half, with a gradual ramp-up in operating margins [65][66] Question: AI applications within the company - The company is exploring AI for internal process improvements rather than product-based applications, indicating early-stage discussions [80][81]

For the quarter ended January 2024, Donaldson (DCI) reported revenue of $876.7 million, up 5.8% over the same period last year. EPS came in at $0.81, compared to $0.75 in the year-ago quarter.The reported revenue compares to the Zacks Consensus Estimate of $861.25 million, representing a surprise of +1.79%. The company delivered an EPS surprise of +10.96%, with the consensus EPS estimate being $0.73.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wall Street ...

MINNEAPOLIS--(BUSINESS WIRE)--Donaldson Company, Inc. (NYSE: DCI) (Donaldson or the Company), a global leader in technology-led filtration products and solutions, today reported second quarter fiscal 2024 generally accepted accounting principles (GAAP) net earnings of $98.7 million, compared with $86.0 million in fiscal 2023. Second quarter 2023 earnings include pre-tax restructuring and other charges of $9.3 million largely related to the Company’s organizational redesign. Second quarter 2024 GAAP earnings ...

Exhibit 99.1 Donaldson Reports Record Second Quarter Fiscal Year 2024 Sales and Earnings Second quarter sales were $876.7 million, up 5.8% compared with 2023 EPS of $0.81 up 15.9% versus 2023 GAAP EPS and up 8.0% versus 2023 adjusted EPS Raising fiscal 2024 operating margin and EPS guidance On track to deliver record full-year sales and EPS MINNEAPOLIS (February 28, 2024) — Donaldson Company, Inc. (NYSE: DCI) (Donaldson or the Company), a global leader in technology-led filtration products and solutions, to ...

Donaldson (DCI) is expected to deliver a year-over-year decline in earnings on higher revenues when it reports results for the quarter ended January 2024. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The earnings report, which is expected to be released on February 28, 2024, might help the stock move higher if these key numbers are better than ex ...

MINNEAPOLIS--(BUSINESS WIRE)--Donaldson Company, Inc. (NYSE: DCI), a leading worldwide provider of innovative filtration products and solutions, today announced that Tod Carpenter, chairman, president, and chief executive officer will present at the Citi 2024 Global Industrial Tech and Mobility Conference in Miami, Florida on Tuesday, February 20, beginning at 7:10 a.m. ET. WEBCAST: To listen to a live webcast of the presentations, visit the “Events & Presentations” section of Donaldson’s Investor Rel ...