Donaldson(US:DCI)2024-06-04 13:48PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for Q3 FY2024, highlighting year-over-year growth in net sales and earnings | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net sales | $927.9 million | $875.7 million | | Gross profit | $330.1 million | $288.8 million | | Operating income | $143.6 million | $124.0 million | | Net earnings | $113.5 million | $93.7 million | | Diluted EPS | $0.92 | $0.76 | | Metric | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net sales | $2,650.9 million | $2,551.3 million | | Gross profit | $939.6 million | $860.5 million | | Operating income | $397.9 million | $359.6 million | | Net earnings | $304.3 million | $266.9 million | | Diluted EPS | $2.48 | $2.16 | | Metric | April 30, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Total current assets | $1,400.7 million | $1,286.0 million | | Total assets | $2,866.1 million | $2,770.5 million | | Total current liabilities | $735.2 million | $756.4 million | | Total liabilities | $1,382.1 million | $1,449.8 million | | Total stockholders' equity | $1,484.0 million | $1,320.7 million | | Activity | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $366.5 million | $353.7 million | | Net cash used in investing activities | ($67.8) million | ($155.1) million | | Net cash used in financing activities | ($257.5) million | ($204.1) million | | Increase (decrease) in cash | $36.6 million | ($7.3) million | Notes to Condensed Consolidated Financial Statements This section provides detailed notes on significant financial events, including a strategic acquisition, share repurchases, and dividends - In Q3 FY2024, the company entered a definitive agreement to purchase a 49% stake in Medica S.p.A., a leader in hollow fiber membrane filtration technology, with an option to acquire the remaining 51% in the future33 Net Sales by Geographic Region (Nine Months Ended April 30) | Region | 2024 | 2023 | | :--- | :--- | :--- | | U.S. and Canada | $1,175.5 million | $1,099.0 million | | EMEA | $747.1 million | $734.5 million | | APAC | $441.6 million | $453.8 million | | LATAM | $286.7 million | $264.0 million | | Total | $2,650.9 million | $2,551.3 million | - During the nine months ended April 30, 2024, the company repurchased 1.8 million shares for $114.0 million. As of April 30, 2024, authorization remained to repurchase 11.4 million shares50 - Dividends paid were 75.0 cents per common share for the nine months ended April 30, 2024, an increase from 69.0 cents for the same period in the prior year. A subsequent dividend of 27.0 cents per share was declared on May 31, 202451 Net Sales by Segment (Nine Months Ended April 30) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Mobile Solutions | $1,675.5 million | $1,632.3 million | | Industrial Solutions | $778.7 million | $737.6 million | | Life Sciences | $196.7 million | $181.4 million | | Total | $2,650.9 million | $2,551.3 million | Earnings (Loss) Before Income Taxes by Segment (Nine Months Ended April 30) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Mobile Solutions | $299.3 million | $242.3 million | | Industrial Solutions | $141.0 million | $133.0 million | | Life Sciences | ($9.5) million | $17.3 million | | Corporate and unallocated | ($34.9) million | ($41.2) million | | Total | $395.9 million | $351.4 million | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and YTD FY2024 financial performance, covering sales growth, gross margin, segment results, and liquidity Consolidated Results of Operations This section details consolidated financial performance for Q3 and YTD, highlighting improvements in net sales, gross margin, and net earnings Q3 FY2024 vs Q3 FY2023 Performance | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $927.9M | $875.7M | +6.0% | | Gross Margin | 35.6% | 33.0% | +260 bps | | Operating Income | $143.6M | $124.0M | +15.8% | | Net Earnings | $113.5M | $93.7M | +21.1% | | Diluted EPS | $0.92 | $0.76 | +21.7% | Nine Months YTD FY2024 vs YTD FY2023 Performance | Metric | YTD 2024 | YTD 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,650.9M | $2,551.3M | +3.9% | | Gross Margin | 35.4% | 33.7% | +170 bps | | Operating Income | $397.9M | $359.6M | +10.6% | | Net Earnings | $304.3M | $266.9M | +14.0% | | Diluted EPS | $2.48 | $2.16 | +15.0% | - The increase in gross margin was primarily driven by leverage on higher sales, pricing actions, and input cost deflation114 - Selling, general and administrative (SG&A) expenses increased, primarily due to increased headcount and incremental expenses from investments in acquired Life Sciences businesses115125 Segment Results of Operations This section analyzes segment net sales and earnings, highlighting growth drivers and challenges for Mobile, Industrial, and Life Sciences Q3 FY2024 Net Sales Growth by Segment (YoY) | Segment | Q3 2024 Sales | Growth Rate | | :--- | :--- | :--- | | Mobile Solutions | $585.2M | +5.5% | | Industrial Solutions | $269.1M | +2.9% | | Life Sciences | $73.6M | +24.2% | - Mobile Solutions sales growth was driven by a $43.9 million increase in Aftermarket sales, partially offset by an $11.4 million decrease in Off-Road sales due to weak agriculture end market conditions135 - Life Sciences sales saw a significant 24.2% increase in Q3, driven by the timing of Bioprocessing Equipment sales and strong demand in Disk Drive146 - The Life Sciences segment reported a loss before income taxes of $9.5 million for the nine-month period, a decrease from earnings of $17.3 million in the prior year, driven by investments to scale up recently-acquired businesses149 Liquidity, Capital Resources and Financial Condition This section assesses liquidity, capital resources, and financial condition, detailing cash flow, debt, and available credit facilities - Cash provided by operating activities increased to $366.5 million for the nine months ended April 30, 2024, up from $353.7 million in the prior year, primarily due to higher earnings151152 - Cash used in investing activities decreased significantly to $67.8 million from $155.1 million, mainly due to lower cash usage for acquisitions compared to the prior year151153 - Total debt as a percentage of total capitalization decreased to 27.3% as of April 30, 2024, from 33.2% as of July 31, 2023158 - The company maintains sufficient liquidity with $223.7 million in cash and cash equivalents and $573.4 million available for borrowing under existing credit facilities as of April 30, 2024156157 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company details its exposure to market risks, including foreign currency and interest rates, and its use of derivative instruments - The company is exposed to foreign currency risk due to significant assets and operations outside the U.S. For the nine months ended April 30, 2024, foreign currency translation increased reported net sales by $10.1 million and net earnings by $0.6 million169170 - To manage currency risk, the company uses foreign currency forward contracts (total notional amount of $167.7 million) and net investment hedges (notional amount of €80 million)172173 - The company is exposed to interest rate risk on its variable-rate debt. A hypothetical 0.5 percentage point increase in short-term interest rates would have increased interest expense by approximately $1.0 million in the nine-month period175 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - 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 report179 - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls180 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company believes its estimated liability for claims and litigation is adequate and not material to its financial position - The company believes its estimated liability for claims and litigation is adequate and not material to its financial position. It is considered remote that settlements will materially exceed accrued amounts182 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2023 - 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, 2023183 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during Q3 FY2024 and remaining authorization under the new plan Share Repurchases (Q3 FY2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 2024 | 56,766 | $65.32 | | March 2024 | 1,337 | $72.52 | | April 2024 | 321,500 | $73.02 | | Total | 379,603 | $71.86 | - On November 17, 2023, the Board of Directors authorized a new repurchase plan for up to 12.0 million shares. As of the end of the quarter, 11.4 million shares remained authorized for repurchase under this plan184 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications and financial statements in iXBRL format