Donaldson(DCI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements For Q1 FY2025, Donaldson Company, Inc. reported increased net sales and earnings, with total assets growing to $3.04 billion, while cash flow from operations decreased due to higher working capital needs Condensed Consolidated Statements of Earnings Q1 FY2025 Earnings Summary (Unaudited) | Financial Metric | Three Months Ended Oct 31, 2024 | Three Months Ended Oct 31, 2023 | | :--- | :--- | :--- | | Net Sales | $900.1 M | $846.3 M | | Gross Profit | $319.6 M | $300.9 M | | Operating Income | $130.8 M | $124.6 M | | Net Earnings | $99.0 M | $92.1 M | | Diluted EPS | $0.81 | $0.75 | - Net sales increased by 6.4% YoY, while net earnings grew by 7.5% YoY for the three months ended October 31, 2024[7] Condensed Consolidated Statements of Comprehensive Income Comprehensive income significantly increased to $104.9 million, primarily driven by a positive foreign currency translation gain - Comprehensive income was $104.9 million for the quarter ended October 31, 2024, a significant increase from $56.3 million in the prior-year period, primarily driven by a positive foreign currency translation gain of $4.9 million, compared to a loss of $37.6 million in the same period last year[9] Condensed Consolidated Balance Sheets Total assets increased to $3,043.6 million, mainly due to growth in other long-term assets and inventories Balance Sheet Highlights (as of Oct 31, 2024) | Account | Oct 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $221.2 M | $232.7 M | | Inventories, net | $520.0 M | $476.7 M | | Total Assets | $3,043.6 M | $2,914.3 M | | Long-term debt | $538.6 M | $483.4 M | | Total Liabilities | $1,500.6 M | $1,425.2 M | | Total Stockholders' Equity | $1,543.0 M | $1,489.1 M | - Total assets increased by $129.3 million from July 31, 2024, primarily due to a rise in 'Other long-term assets' (from $180.4 M to $268.6 M) and inventories[12] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased significantly year-over-year, while investing activities increased due to a major equity investment Cash Flow Summary (Three Months Ended Oct 31) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from Operating | $72.9 M | $138.0 M | | Net cash used in Investing | ($96.0 M) | ($23.2 M) | | Net cash from (used in) Financing | $9.8 M | ($78.9 M) | | Decrease in Cash | ($11.5 M) | $30.7 M (Increase) | - Cash from operating activities decreased significantly YoY, mainly due to changes in operating assets and liabilities, while investing activities increased due to a $71.0 million equity investment[14] Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, including the acquisition of a 49% stake in Medica S.p.A., revenue growth across all regions and segments, share repurchases, and a restructuring charge - On August 9, 2024, the company acquired a 49% non-controlling stake in Medica S.p.A. for approximately €67.2 million ($73.7 million), including transaction costs, with an option to acquire the remaining 51% in four years[24] Net Sales by Geographic Region (in millions) | Region | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | U.S. and Canada | $409.8 M | $381.5 M | | EMEA | $240.9 M | $234.4 M | | APAC | $155.2 M | $140.0 M | | LATAM | $94.2 M | $90.4 M | | Total | $900.1 M | $846.3 M | - During the quarter, the company repurchased 1.0 million shares for $74.9 million and paid dividends of 27.0 cents per share, an increase from 25.0 cents in the prior year[36][37] Segment Net Sales and Earnings Before Tax (in millions) | Segment | Net Sales Q1 FY25 | Net Sales Q1 FY24 | Earnings Before Tax Q1 FY25 | Earnings Before Tax Q1 FY24 | | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | $572.4 M | $540.0 M | $104.7 M | $92.2 M | | Industrial Solutions | $257.6 M | $246.2 M | $41.0 M | $43.3 M | | Life Sciences | $70.1 M | $60.1 M | ($5.3 M) | ($4.2 M) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 6.4% increase in net sales driven by volume growth across all segments, with strong liquidity despite decreased operating cash flow due to higher working capital needs Consolidated Results of Operations Consolidated net sales for Q1 FY2025 increased by 6.4% to $900.1 million, driven by volume and pricing, while gross margin slightly declined due to restructuring expenses Drivers of Net Sales Increase (YoY, in millions) | Segment | Oct 31, 2023 Sales | Sales Volume | Pricing | Currency Translation | Oct 31, 2024 Sales | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | $540.0 M | $21.9 M | $7.2 M | $3.3 M | $572.4 M | | Industrial Solutions | $246.2 M | $7.4 M | $1.8 M | $2.2 M | $257.6 M | | Life Sciences | $60.1 M | $8.9 M | ($0.5 M) | $1.6 M | $70.1 M | | Total Company | $846.3 M | $38.2 M | $8.5 M | $7.1 M | $900.1 M | - The decrease in gross margin percentage was primarily attributed to $1.1 million in restructuring expenses related to global footprint and cost optimization actions[81] - The effective tax rate decreased to 24.2% from 25.1% in the prior year, mainly due to an increase in discrete tax benefits[86] Segment Results of Operations All three segments contributed to sales growth, with Mobile Solutions showing improved profit margin, Industrial Solutions experiencing a margin decrease, and Life Sciences reporting a larger pre-tax loss due to investments - Mobile Solutions: Sales increased 6.0% YoY, driven by a $43.7 million increase in Aftermarket sales due to favorable market conditions and share gains, with earnings before tax margin increasing from 17.1% to 18.3%[88][89] - Industrial Solutions: Sales grew 4.6% YoY, led by a $9.6 million increase in Aerospace and Defense, but earnings before tax margin decreased from 17.6% to 15.9% due to investments for future growth and negative product mix[91][92] - Life Sciences: Sales grew 16.6% YoY, fueled by strong demand in disk drive and food & beverage markets, though the segment's pre-tax loss increased to $5.3 million from $4.2 million, reflecting investments in recent acquisitions[92][94] Liquidity, Capital Resources and Financial Condition The company maintains strong liquidity with available credit, despite a significant decrease in operating cash flow primarily due to increased working capital and a major equity investment Cash Flow Summary (in millions) | Activity | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | Operating | $72.9 M | $138.0 M | ($65.1 M) | | Investing | ($96.0 M) | ($23.2 M) | ($72.8 M) | | Financing | $9.8 M | ($78.9 M) | $88.7 M | - The decrease in operating cash flow was primarily driven by an increase in working capital requirements, including purchasing additional inventory to improve on-time deliveries[96] - As of October 31, 2024, the company had $327.0 million available on its $500.0 million unsecured revolving credit facility[99][100] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency exchange rates, interest rates, and commodity prices through hedging strategies and monitoring - The weaker U.S. dollar during the quarter had a positive impact, increasing reported net sales by $7.1 million and net earnings by $0.9 million[108] - The company uses foreign currency forward contracts to manage transaction exposures, with a total notional amount of $257.0 million ($66.9 million designated as hedges, $190.1 million not designated) as of October 31, 2024[110] - Net investment hedges with a notional amount of €80 million are used to hedge exposure for European operations[111] - A hypothetical 0.5 percentage point increase in short-term interest rates would have increased interest expense by approximately $0.4 million in the quarter[112] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[117] - No material changes occurred in the company's internal control over financial reporting during the fiscal quarter ended October 31, 2024[118] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company assesses its recorded liabilities for claims and litigation as not material to its financial position or results of operations - The company believes its estimated liabilities for claims and litigation are adequate and not material to its financial position, considering it remote that settlements will materially exceed accrued amounts[121] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended July 31, 2024 - The report refers to the "Risk Factors" section in the company's Annual Report on Form 10-K for the fiscal year ended July 31, 2024, indicating no material changes[122] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 FY2025, the company repurchased approximately 1.0 million shares of common stock, with 9.7 million shares remaining authorized for repurchase Share Repurchases (Q1 FY2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 2024 | 399,865 shares | $72.68 | | Sep 2024 | 186,399 shares | $72.42 | | Oct 2024 | 439,022 shares | $73.68 | | Total | 1,025,286 shares | $73.06 | - As of October 31, 2024, the company has remaining authorization to repurchase 9.7 million shares under its stock repurchase plan authorized in November 2023[123] Item 5. Other Information No director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter[125] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in iXBRL format - Key exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and financial data in iXBRL format[127]