Donaldson(DCI) - 2025 Q4 - Annual Results

Executive Summary & Financial Highlights This section provides an overview of Donaldson's record-breaking fiscal year 2025 performance and outlines the financial guidance for fiscal year 2026 Fourth Quarter Fiscal Year 2025 Highlights Donaldson achieved record results in Q4 FY2025, with sales growing 4.8% to $981 million and adjusted EPS increasing 9.6% to $1.03, returning approximately $95 million to shareholders Key Financial Data for Fourth Quarter Fiscal Year 2025 | Metric | Amount/Percentage | | :--- | :--- | | Sales | $981 million (up 4.8%) | | GAAP EPS | $0.97 (up 7.8%) | | Adjusted EPS | $1.03 (up 9.6%) | | Shareholder Returns | Approximately $95 million | Full Year Fiscal Year 2025 Highlights For the full fiscal year 2025, Donaldson's sales grew 2.9% to $3.7 billion, with adjusted EPS increasing 7.6% to $3.68, while returning approximately $465 million to shareholders Key Financial Data for Full Year Fiscal Year 2025 | Metric | Amount/Percentage | | :--- | :--- | | Sales | $3.7 billion (up 2.9%) | | GAAP EPS | $3.05 (down 9.8%) | | Adjusted EPS | $3.68 (up 7.6%) | | Shareholder Returns | Approximately $465 million | - The company made progress in optimizing its business portfolio and cost efficiency, alongside investments in the Life Sciences segment[2] Fiscal Year 2026 Guidance Overview Donaldson anticipates fiscal year 2026 to be another record year, projecting sales of $3.8 billion and EPS of $4.00, driven by record sales, operating margin, and net earnings Fiscal Year 2026 Guidance | Metric | Expectation | | :--- | :--- | | Sales | Approximately $3.8 billion | | EPS | Approximately $4.00 | - Record levels are anticipated for sales, operating margin, and net earnings[1] CEO Commentary CEO Tod Carpenter highlighted strong FY2025 performance, progress in business model efficiency, and projected record sales and higher operating margins for FY2026, alongside continued investment in growth and shareholder returns - Strong fourth quarter fiscal year 2025 results concluded a record fiscal year 2025[3] - The company made progress in building higher structural business model efficiency through portfolio and cost optimization initiatives, alongside operating expense management[3] - Fiscal year 2026 is projected to achieve $3.8 billion in sales, with gross margin expansion and record operating margin[4] Fiscal Year 2025 Operating Results This section details Donaldson's fiscal year 2025 operating performance, including overall sales, segment-specific results, profitability, expenses, and shareholder returns Overall Sales Performance Total sales for Q4 FY2025 increased 4.8% to $980.7 million, driven by volume, favorable currency translation, and pricing, with full-year sales growing 2.9% to $3,690.9 million Sales Performance (YoY) | Period | Sales (million USD) | Growth Rate | | :--- | :--- | :--- | | Q4 FY2025 | $980.7 | 4.8% | | Full Year FY2025 | $3,690.9 | 2.9% | - Fourth quarter sales growth was primarily driven by increased volume, favorable currency translation, and pricing benefits[5] Segment Performance In Q4 FY2025, Mobile Solutions sales grew 2.3%, Industrial Solutions 7.7%, and Life Sciences 14.1%, with varied drivers including strong off-road and aftermarket performance, offset by declining on-road sales Mobile Solutions Segment Mobile Solutions segment sales increased 2.3% in Q4, driven by strong off-road (5.1% growth) and aftermarket (3.3% growth), partially offset by a 20.1% decline in on-road sales, with full-year sales up 1.8% Mobile Solutions Segment Sales Growth (YoY) | Sub-Segment | Q4 FY2025 Growth Rate | Full Year FY2025 Growth Rate | | :--- | :--- | :--- | | Off-Road | 5.1% | (5.6)% | | On-Road | (20.1)% | (20.9)% | | Aftermarket | 3.3% | 5.2% | | Total | 2.3% | 1.8% | - Off-road sales growth was driven by increased sales in Europe and Asia Pacific; aftermarket sales growth benefited from OE and independent channels' strong performance; on-road sales declined due to reduced equipment production, primarily in the U.S[7] Industrial Solutions Segment Industrial Solutions sales grew 7.7% in Q4, primarily driven by a 10.5% increase in Industrial Filtration Solutions (IFS) due to higher demand for new dust collection equipment in Europe and the U.S., and power generation project timing, while Aerospace and Defense sales declined 5.9% due to a prior year surge Industrial Solutions Segment Sales Growth (YoY) | Sub-Segment | Q4 FY2025 Growth Rate | Full Year FY2025 Growth Rate | | :--- | :--- | :--- | | Industrial Filtration Solutions (IFS) | 10.5% | 1.5% | | Aerospace and Defense | (5.9)% | 15.0% | | Total | 7.7% | 3.6% | - IFS sales growth was driven by increased demand for new dust collection equipment in Europe and the U.S., and the timing of power generation projects[8] Life Sciences Segment Life Sciences segment sales increased 14.1% year-over-year in Q4 and 9.8% for the full year, primarily driven by strong sales of new equipment and replacement parts in food and beverage and disk drive markets Life Sciences Segment Sales Growth (YoY) | Period | Growth Rate | | :--- | :--- | | Q4 FY2025 | 14.1% | | Full Year FY2025 | 9.8% | - Growth was driven by strong sales of new equipment and replacement parts in the food and beverage and disk drive sectors[9] Profitability and Expenses In Q4 FY2025, gross margin declined due to tariff-related inflation and inventory valuation headwinds, while operating expenses as a percentage of sales improved; GAAP operating margin slightly decreased, adjusted operating margin slightly increased, interest expense rose due to higher rates, and the effective tax rate increased due to fewer net discrete tax benefits Gross Margin GAAP gross margin for Q4 FY2025 was 34.5%, a 130 basis point decrease from 2024, primarily due to tariff-related inflation and inventory valuation headwinds, with adjusted gross margin at 34.8%, down from 36.2% year-over-year Gross Margin (YoY) | Metric | Q4 FY2025 | Q4 FY2024 | Change (bps) | | :--- | :--- | :--- | :--- | | GAAP Gross Margin | 34.5% | 35.8% | -130 | | Adjusted Gross Margin | 34.8% | 36.2% | -140 | - Gross margin decline was primarily due to tariff-related inflation and associated inventory valuation headwinds[9] Operating Expenses and Margin Operating expenses as a percentage of sales improved by 110 basis points to 19.1% in Q4 FY2025, driven by sales leverage and disciplined expense management; GAAP operating margin was 15.5% (down 10 bps), while adjusted operating margin was 16.4% (up 10 bps) Operating Expenses and Margin (YoY) | Metric | Q4 FY2025 | Q4 FY2024 | Change (bps) | | :--- | :--- | :--- | :--- | | Operating Expenses as % of Sales | 19.1% | 20.2% | -110 | | GAAP Operating Margin | 15.5% | 15.6% | -10 | | Adjusted Operating Margin | 16.4% | 16.3% | +10 | - Operating expense improvement was driven by sales leverage and disciplined expense management[10] Interest Expense and Tax Rate Q4 FY2025 interest expense was $7.1 million, up from $5.3 million in 2024 due to higher interest rates, and the effective tax rate increased to 23.6% from 21.3% due to fewer net discrete tax benefits Interest Expense and Effective Tax Rate (YoY) | Metric | Q4 FY2025 | Q4 FY2024 | Change | | :--- | :--- | :--- | :--- | | Interest Expense | $7.1 million | $5.3 million | 35.1% | | Effective Tax Rate | 23.6% | 21.3% | 2.3% | - Increased interest expense was due to higher interest rates[11] - The effective tax rate increased due to fewer net discrete tax benefits[11] Shareholder Returns For the full fiscal year 2025, Donaldson paid $131.9 million in dividends and repurchased 4.0% of its outstanding shares for $333.6 million Full Year Fiscal Year 2025 Shareholder Returns | Metric | Amount | | :--- | :--- | | Dividends Paid | $131.9 million | | Share Repurchases | $333.6 million (4.0% of outstanding shares) | Fiscal Year 2026 Outlook This section outlines Donaldson's financial projections for fiscal year 2026, including overall financial targets, segment sales forecasts, and capital allocation plans Overall Financial Projections Donaldson projects full-year fiscal year 2026 EPS between $3.92 and $4.08, with sales growth of 1% to 5% (midpoint $3.8 billion), including approximately 1% from pricing benefits Overall Financial Projections for Fiscal Year 2026 | Metric | Forecast Range | | :--- | :--- | | Full-Year EPS | $3.92 - $4.08 | | Sales Growth | 1% - 5% (midpoint $3.8 billion) | | Pricing Benefits | Approximately 1% | Segment Sales Projections For FY2026, Mobile Solutions sales are projected flat to up 4%, Industrial Solutions up 2% to 6%, and Life Sciences up 1% to 5%, with specific growth expectations across sub-segments like off-road, on-road, IFS, and food and beverage Mobile Solutions Segment Outlook Mobile Solutions segment sales are projected to be flat to up 4% in FY2026, with mid-single-digit growth in off-road, high-single-digit growth in on-road (a modest rebound from FY2025 decline), and low-single-digit growth in aftermarket, driven by market share gains and sustained strong fleet utilization - Mobile sales are projected to be flat to up 4%[14] - Off-road sales are expected to achieve mid-single-digit growth[14] - On-road sales are projected for high-single-digit growth, representing a modest rebound from the fiscal year 2025 decline[14] - Aftermarket sales are anticipated to see low-single-digit growth, benefiting from market share gains and continued strong fleet utilization[14] Industrial Solutions Segment Outlook Industrial Solutions sales are projected to grow 2% to 6% in FY2026, with mid-single-digit growth in Industrial Filtration Solutions (IFS) across all businesses including dust collection and power generation, while Aerospace and Defense sales are expected to remain largely flat after a record FY2025 - Industrial sales are projected to grow 2% to 6%[15] - IFS sales are expected to achieve mid-single-digit growth, with strong performance across all businesses including dust collection and power generation[15] - Aerospace and Defense sales are anticipated to remain largely flat following a record fiscal year 2025[15] Life Sciences Segment Outlook Life Sciences segment sales are projected to grow 1% to 5% in FY2026, primarily driven by continued sales growth in the food and beverage and disk drive sectors - Life Sciences sales are projected to grow 1% to 5%[15] - Growth drivers include continued sales growth in the food and beverage and disk drive sectors[15] Profitability and Capital Projections For FY2026, Donaldson forecasts operating margin between 16.1% and 16.7%, driven by gross margin expansion and sales leverage, with specific projections for interest expense, other income, effective tax rate, capital expenditures of $65 million to $85 million, free cash flow conversion of 85% to 95%, and plans to repurchase 2% to 3% of outstanding shares Operating Margin Outlook Operating margin for FY2026 is projected between 16.1% and 16.7% (compared to FY2025 GAAP 13.4% or adjusted 15.7%), primarily driven by gross margin expansion and sales leverage Fiscal Year 2026 Operating Margin Forecast | Metric | Forecast Range | | :--- | :--- | | Operating Margin | 16.1% - 16.7% | - Growth drivers include gross margin expansion and sales leverage[16] Interest, Other Income, and Tax Rate Outlook For FY2026, interest expense is projected between $22 million and $23 million, other income between $14 million and $18 million, and the effective income tax rate between 23.5% and 25.5% Fiscal Year 2026 Interest, Other Income, and Tax Rate Forecast | Metric | Forecast Range | | :--- | :--- | | Interest Expense | $22 million - $23 million | | Other Income | $14 million - $18 million | | Effective Income Tax Rate | 23.5% - 25.5% | Capital Expenditures and Free Cash Flow Outlook FY2026 capital expenditures are projected between $65 million and $85 million, with free cash flow conversion between 85% and 95%, and plans to repurchase 2% to 3% of outstanding shares Fiscal Year 2026 Capital Expenditures and Free Cash Flow Forecast | Metric | Forecast Range | | :--- | :--- | | Capital Expenditures | $65 million - $85 million | | Free Cash Flow Conversion | 85% - 95% | | Share Repurchases | 2% - 3% of outstanding shares | Company Information & Disclosures This section provides details on Donaldson's webcast information, forward-looking statements, and an overview of the company's global operations and mission Webcast Information Donaldson will webcast its Q4 and full-year FY2025 earnings call on August 27, 2025, at 9:00 AM CT, with a replay available on its investor relations website by 12:00 PM CT the same day - The webcast for the fourth quarter and full year fiscal year 2025 earnings call is scheduled for August 27, 2025, at 9:00 AM CT[18] - A replay of the webcast will be available on IR.Donaldson.com by 12:00 PM CT on the same day[18] Forward-Looking Statements This press release contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations, with no obligation to update or revise unless legally required, and detailed risk factors found in the company's FY2024 Form 10-K - Statements involve future events and expectations, such as projections, plans, trends, and forecasts of the company's business and financial performance[19] - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from any opinion or statement[19] - The company undertakes no obligation to publicly update or revise any forward-looking statements unless required by law; risk factors are detailed in the company's fiscal year 2024 Form 10-K annual report[19] About Donaldson Company, Inc. Founded in 1915, Donaldson (NYSE: DCI) is a global leader in technology-led filtration products and solutions, serving diverse industries and advanced markets across 140+ locations on six continents, addressing complex filtration challenges through its Mobile Solutions, Industrial Solutions, and Life Sciences segments - Donaldson, founded in 1915, is a global leader in technology-led filtration products and solutions[20] - The company operates in over 140 locations across six continents, serving a wide range of industries and advanced markets[20] - Complex filtration challenges are addressed through three primary segments: Mobile Solutions, Industrial Solutions, and Life Sciences[20] Financial Statements This section presents Donaldson's unaudited condensed consolidated financial statements, including statements of earnings, balance sheets, and cash flows for specified periods Condensed Consolidated Statements of Earnings This section provides unaudited condensed consolidated statements of earnings for the three and twelve months ended July 31, 2025, and 2024, detailing key financial metrics such as net sales, cost of sales, gross profit, operating expenses, operating income, net earnings, and earnings per share Condensed Consolidated Statements of Earnings Summary (million USD, except per share amounts) | Metric | July 31, 2025 (3 Months) | July 31, 2024 (3 Months) | July 31, 2025 (12 Months) | July 31, 2024 (12 Months) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $980.7 | $935.4 | $3,690.9 | $3,586.3 | | Gross Profit | $338.8 | $334.8 | $1,286.2 | $1,274.4 | | Operating Income | $151.7 | $146.2 | $495.4 | $544.1 | | Net Earnings | $114.3 | $109.7 | $367.0 | $414.0 | | Diluted EPS | $0.97 | $0.90 | $3.05 | $3.38 | | Dividends Per Share | $0.30 | $0.27 | $1.11 | $1.02 | Condensed Consolidated Balance Sheets This section presents unaudited condensed consolidated balance sheets as of July 31, 2025, and 2024, detailing the composition of assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets Summary (million USD) | Metric | July 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $180.4 | $232.7 | | Total Current Assets | $1,461.7 | $1,438.1 | | Total Assets | $2,977.2 | $2,914.3 | | Total Current Liabilities | $757.2 | $782.5 | | Total Liabilities | $1,523.7 | $1,425.2 | | Total Shareholders' Equity | $1,453.5 | $1,489.1 | Condensed Consolidated Statements of Cash Flows This section provides unaudited condensed consolidated statements of cash flows for the twelve months ended July 31, 2025, and 2024, detailing cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Summary (million USD) | Activity Type | July 31, 2025 (12 Months) | July 31, 2024 (12 Months) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $418.8 | $492.5 | | Net Cash Used in Investing Activities | ($150.4) | ($86.9) | | Net Cash Used in Financing Activities | ($321.7) | ($355.9) | | Cash and Cash Equivalents (End of Period) | $180.4 | $232.7 | Supplemental Financial Data This section offers additional unaudited financial data, including consolidated ratio analysis (GAAP and adjusted), segment details, and geographical sales changes, both as reported and at constant currency Consolidated Ratio Analysis (GAAP & Adjusted) This section provides unaudited consolidated ratio analysis for the three and twelve months ended July 31, 2025, and 2024, including GAAP and adjusted gross margin, operating expenses, operating margin, EBITDA, and effective tax rate, offering a comprehensive view of financial performance Consolidated Ratio Analysis Summary (July 31, 2025) | Metric | 3 Months (GAAP) | 12 Months (GAAP) | 3 Months (Adjusted) | 12 Months (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Gross Margin | 34.5% | 34.8% | 34.8% | 35.0% | | Operating Expenses | 19.1% | 21.4% | 18.3% | 19.3% | | Operating Margin | 15.5% | 13.4% | 16.4% | 15.7% | | EBITDA | 18.5% | 16.7% | 19.4% | 19.0% | | Effective Tax Rate | 23.6% | 25.4% | 23.7% | 23.3% | - Adjusted ratios exclude the impact of certain items unrelated to ongoing operations, providing a meaningful representation of core business performance[29] Segment Detail (Sales & Earnings before Income Taxes) This section provides unaudited segment details for the three and twelve months ended July 31, 2025, and 2024, including net sales and earnings before income taxes for Mobile Solutions, Industrial Solutions, and Life Sciences segments, along with their respective percentages Segment Sales and Earnings Before Income Taxes Summary (million USD) | Segment | July 31, 2025 (3 Months) Sales | July 31, 2025 (3 Months) Earnings Before Income Taxes | July 31, 2025 (12 Months) Sales | July 31, 2025 (12 Months) Earnings Before Income Taxes | | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | $588.4 | $112.1 | $2,291.0 | $417.6 | | Industrial Solutions | $309.8 | $64.6 | $1,104.4 | $197.7 | | Life Sciences | $82.4 | $4.4 | $295.5 | $4.4 | | Total | $980.7 | $149.7 | $3,690.9 | $492.2 | Segment Sales Percent Change by Geography (As Reported) This section presents unaudited segment sales percentage changes by geographic region (U.S./Canada, EMEA, Asia Pacific, Latin America) for the three and twelve months ended July 31, 2025, reflecting regional sales performance July 31, 2025 (3 Months) Segment Sales Geographic Change (As Reported) | Segment | Total | U.S./Canada | Europe/Middle East/Africa | Asia Pacific | Latin America | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | 2.3% | (2.7)% | 11.1% | 4.5% | (0.2)% | | Industrial Solutions | 7.7% | 4.4% | 15.1% | 6.1% | (8.0)% | | Life Sciences | 14.1% | 27.5% | 8.8% | 13.7% | 21.6% | | Total Company | 4.8% | 0.7% | 12.3% | 6.6% | (0.7)% | July 31, 2025 (12 Months) Segment Sales Geographic Change (As Reported) | Segment | Total | U.S./Canada | Europe/Middle East/Africa | Asia Pacific | Latin America | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | 1.8% | 0.6% | 1.5% | 3.6% | 3.7% | | Industrial Solutions | 3.6% | 6.7% | 1.8% | (0.2)% | (13.2)% | | Life Sciences | 9.8% | 13.0% | (0.4)% | 19.8% | 6.5% | | Total Company | 2.9% | 3.1% | 1.4% | 5.7% | 1.8% | Segment Sales Percent Change by Geography (Constant Currency) This section provides unaudited segment sales percentage changes by geographic region (U.S./Canada, EMEA, Asia Pacific, Latin America) at constant currency for the three and twelve months ended July 31, 2025, to reflect underlying business performance by excluding currency fluctuations July 31, 2025 (3 Months) Segment Sales Geographic Change (Constant Currency) | Segment | Total | U.S./Canada | Europe/Middle East/Africa | Asia Pacific | Latin America | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | 0.7% | (2.7)% | 4.6% | 3.5% | 0.9% | | Industrial Solutions | 5.8% | 4.4% | 9.8% | 5.1% | (7.3)% | | Life Sciences | 8.5% | 27.5% | 1.9% | 7.1% | 23.0% | | Total Company | 2.9% | 0.7% | 6.1% | 4.5% | 0.3% | July 31, 2025 (12 Months) Segment Sales Geographic Change (Constant Currency) | Segment | Total | U.S./Canada | Europe/Middle East/Africa | Asia Pacific | Latin America | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobile Solutions | 1.9% | 0.6% | (0.4)% | 4.3% | 6.6% | | Industrial Solutions | 3.1% | 6.7% | 0.0% | 0.2% | (11.1)% | | Life Sciences | 7.9% | 13.0% | (2.3)% | 16.5% | 10.6% | | Total Company | 2.7% | 3.1% | (0.5)% | 5.6% | 4.7% | - Constant currency presentation excludes the impact of foreign currency exchange rate fluctuations, providing valuable supplemental information about operating results[36] Reconciliation of Non-GAAP Financial Measures This section provides reconciliation tables for non-GAAP financial measures (including free cash flow, EBITDA, adjusted EBITDA, adjusted gross profit, adjusted operating expenses, adjusted operating income, adjusted net earnings, and adjusted diluted EPS) to their most directly comparable GAAP measures for the three and twelve months ended July 31, 2025, and 2024 Non-GAAP Financial Measures Reconciliation Summary (million USD, except per share amounts) | Metric | July 31, 2025 (3 Months) | July 31, 2024 (3 Months) | July 31, 2025 (12 Months) | July 31, 2024 (12 Months) | | :--- | :--- | :--- | :--- | :--- | | Free Cash Flow | $149.7 | $106.9 | $342.0 | $407.6 | | EBITDA | $181.2 | $169.6 | $615.9 | $655.1 | | Adjusted EBITDA | $190.7 | $176.0 | $701.0 | $661.5 | | Adjusted Net Earnings | $121.4 | $114.5 | $442.8 | $418.8 | | Adjusted Diluted EPS | $1.03 | $0.94 | $3.68 | $3.42 | - Non-GAAP financial measures (such as free cash flow, EBITDA, and adjusted metrics), while not GAAP compliant, are considered by the company to be useful in understanding financial performance, reflecting management's operation of the company, and providing a meaningful representation of core business performance[41] - These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures[41]