Donaldson Company (NYSE:DCI) Q2 2026 Earnings call February 26, 2026 10:00 AM ET Company ParticipantsAdam Farley - Equity Research AssociateAngel Castillo - Executive DirectorBrad Pogalz - Chief Financial OfficerBrian Drab - Partner, Co-Group Head – IndustrialsRich Lewis - Incoming President and CEOSarika Dhadwal - Head of Investor RelationsTim Thein - Managing DirectorTod Carpenter - Chairman, President, and CEOConference Call ParticipantsBryan Blair - Managing Director and Senior AnalystLaurence Alexander ...

Donaldson Company (NYSE:DCI) Q2 2026 Earnings call February 26, 2026 10:00 AM ET Speaker5Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to Donaldson Company's second quarter fiscal year 2026 earnings webcast and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a quest ...

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Core Viewpoint - Jingjin Equipment is a leading company in the filter press industry with a domestic market share exceeding 40% and is recognized as a champion in China's manufacturing sector [1] Group 1: Company Overview - Jingjin Equipment is the main drafter of national standards for filter presses and ranks first globally in production and sales of filter presses [1] - The company's products are widely used across various sectors including minerals and processing, new energy, new materials, environmental protection, chemicals, biotechnology, food, pharmaceuticals, health products, and sand and gravel aggregates [1] Group 2: Financial Performance - During the industry downturn, the company has focused on cost reduction and efficiency improvement while accelerating cash collection [1] - From Q1 to Q3 of 2025, the company's operating cash flow is significantly higher than its profit, indicating excellent operational quality [1] Group 3: Market Outlook - The high prices of non-ferrous metals such as copper and gold are expected to sustain capital expenditures in the non-ferrous metal sector [1] - With the gradual strengthening of environmental policies and rising costs of raw ore extraction, tailings pollution prevention and comprehensive utilization of tailings resources are anticipated to become future development trends, which the company is likely to benefit from [1] Group 4: Valuation Comparison - Compared to peer companies in the industry, such as Hangyang Co., Ltd. and Xianlead Intelligent, Jingjin Equipment's price-to-earnings (PE) ratio is relatively low [1] - The projected PE ratios for Jingjin Equipment from 2025 to 2027 are 15.58, 12.24, and 9.77 times, respectively, maintaining a "buy" rating [1]

Group 1 - The core viewpoint of the articles highlights the transformation of Yuelai Town in Haimen District, Nantong City, from a traditional agricultural town to a modern industrial powerhouse, achieving significant economic growth through internal development and quality improvement [1] Group 2 - Local enterprises are actively expanding, with projects like the 500 million yuan high-performance fiber fabric R&D and manufacturing project nearing completion, and additional investments being made to enhance the local industrial chain [2] - The government emphasizes supporting existing enterprises as a key strategy for attracting investment, with over two-thirds of new major projects in the last quarter coming from local companies [2] Group 3 - Hai Teng Copper Industry Group, a Shanghai-based enterprise, has contributed over one-third of the annual taxable sales in Yuelai Town, with plans to transition from traditional manufacturing to integrated industrial and trade operations, aiming for sales exceeding 5 billion yuan and tax revenue over 20 million yuan within two years [3] - The town aims to achieve multiple breakthroughs in industrial output, the number of regulated enterprises, and high-tech enterprises during the 14th Five-Year Plan period, while expanding its industrial cluster [3] Group 4 - Junyue New Materials Technology Co., Ltd. has rapidly grown in the functional film materials sector, achieving annual sales growth of 20% to 30%, and is expected to surpass 100 million yuan this year [4] - The industrial landscape of Yuelai Town includes both large backbone enterprises and numerous "invisible champions" and "specialized and innovative" companies, contributing to a diverse and robust industrial ecosystem [4]

Financial Data and Key Metrics Changes - First quarter sales reached an all-time high of $935 million, a 4% year-over-year increase [5][12] - Operating profit margin expanded to a record 15.5%, up 60 basis points from the prior year [13][14] - Earnings per share (EPS) was $0.94, reflecting a 13% increase compared to the previous year [6][12] - The company returned $127 million to shareholders through share repurchases and dividends [6] Business Line Data and Key Metrics Changes - **Mobile Solutions**: Total sales were $598 million, up 5% year-over-year; aftermarket sales grew 7% [10] - **Industrial Solutions**: Total sales were $258 million, flat compared to the prior year; Industrial Filtration Solutions (IFS) sales grew 2% [11] - **Life Sciences**: Sales increased by 13% to $79 million, driven by strong growth in food and beverage and disk drive segments [11] Market Data and Key Metrics Changes - The power generation business is robust, supported by high electricity demand, particularly in data centers and AI infrastructure [7][8] - The company experienced solid growth in China, with overall sales up 15% [10] - Tariff impacts are estimated at $25 million annually, down from $35 million previously [9] Company Strategy and Development Direction - The company focuses on a balanced growth strategy and continues to invest in R&D and capital expenditures in high-growth areas [10][22] - The strategic capital allocation priorities include reinvestment in the company, disciplined M&A, dividends, and share repurchase [22][23] - The company aims to maintain its leadership position in technology-led filtration [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering on financial and strategic objectives for the remainder of the year, increasing operating margin and EPS outlook [12][20] - The company anticipates record sales of $3.8 billion and operating margin expansion of 80 basis points to a record 16.5% [12][20] - Management noted that while there are cyclical headwinds, the overall demand remains strong, particularly in the power generation and aftermarket segments [7][8] Other Important Information - The company is on track to complete current footprint optimization initiatives by the second half of the fiscal year [9] - Cash conversion is projected to be in the range of 85%-95%, indicating improved working capital management [21] Q&A Session Summary Question: What was IFS' first-fit in aftermarket revenue in fiscal Q1? - Both first-fit and replacement were up, with power generation performing well due to ongoing projects [30] Question: Can you discuss pricing trends? - The company is in a normalized pricing cycle, managing costs well while remaining competitive [37] Question: What are the regional performance trends? - Europe is strengthening, while the U.S. and Latin America show more caution; China has seen growth but remains uncertain [39] Question: What are the primary drivers of decrementals in the industrial segment? - The decrementals were due to higher operating costs and timing issues in the Aerospace and Defense sector [50] Question: Can you elaborate on the disk drive business outlook? - The disk drive business is driven by technological evolution and demand from AI and cloud storage, with expectations for continued strength [56] Question: How does the company plan to grow in the power generation sector? - Growth is expected to be mid-single digits, with challenges related to capacity utilization and project timing [87]

Financial Data and Key Metrics Changes - First quarter sales reached an all-time high of $935 million, representing a 4% year-over-year increase [5] - Operating profit margin expanded to a record 15.5%, up 60 basis points from the prior year [12] - Earnings per share (EPS) was a record $0.94, reflecting a 13% increase compared to the previous year [5][12] - The company returned $127 million to shareholders through share repurchases and dividends [5] Business Line Data and Key Metrics Changes - **Mobile Solutions**: Total sales were $598 million, up 5% year-over-year; aftermarket sales grew 7% [9] - **Industrial Solutions**: Total sales were $258 million, flat compared to the prior year; Industrial Filtration Solutions (IFS) sales grew 2% [10] - **Life Sciences**: Sales increased by 13% to $79 million, driven by over 20% growth in food and beverage and disk drive segments [10] Market Data and Key Metrics Changes - The power generation business is robust, supported by high electricity demand, particularly in data centers and AI infrastructure [6] - The company experienced solid growth in the independent aftermarket channel, with sales growing nearly double digits [6] - The China business showed strength with overall sales up 15%, particularly in Off-Road and aftermarket segments [9] Company Strategy and Development Direction - The company focuses on a balanced growth strategy, leveraging its leadership in filtration technology and optimizing costs [4] - Continued investments in R&D and capital expenditures are aimed at growth areas such as solvent recovery and air filtration [9][22] - The company is committed to maintaining high on-time delivery rates and optimizing its supply chain to mitigate tariff impacts [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving record sales of $3.8 billion and EPS of $4.03 for fiscal 2026 [11] - The company anticipates gross margin expansion in the second half of the fiscal year as footprint optimization projects are completed [14] - Management noted that while there are cyclical headwinds, the overall demand remains strong, particularly in Europe and China [40] Other Important Information - The company expects to complete its current footprint optimization initiatives by the second half of the fiscal year [8] - The annualized estimate for the impact of tariffs has decreased to approximately $25 million, down from $35 million [8] Q&A Session Summary Question: What was IFS' first-fit in aftermarket revenue in fiscal Q1? - Both first-fit and replacement were up, with power generation performing well due to ongoing projects [30] Question: What structural benefits have been realized from footprint optimization? - Limited structural efficiencies have been realized to date, with more benefits expected in the latter part of the fiscal year [32] Question: Can you discuss pricing trends and market dynamics? - The company is in a normalized pricing cycle, managing costs well while maintaining competitive pricing [36] Question: How is the company performing in different regions? - Europe is strengthening, while the U.S. and Latin America show more caution; China has seen growth but remains uncertain [40] Question: What are the primary drivers of decrementals in the industrial segment? - Pressure on gross margin from higher operating costs and timing issues in project deliveries [51] Question: Can you elaborate on the disk drive business outlook? - The disk drive business is driven by technological evolution and demand from AI and cloud storage [57] Question: How does the company plan to grow in the power generation sector? - Growth is expected to be mid-single digits, with challenges related to capacity utilization and project timing [88]

Company Overview - Donaldson Company, established in 1915, focuses on solving complex filtration needs for global customers, with operations in over 40 countries and more than 100 laboratories worldwide [5][6] - The company provides advanced dust collection equipment and related spare parts, along with professional technical guidance and high-quality after-sales service, tailored to customer requirements [6] Industry Highlights - Donaldson is recognized as a leader in filtration technology, continuously innovating and investing in research and development to enhance product performance and environmental protection [6] - The company's filtration products are widely used in industrial markets and engine markets, including dust collectors, power generation, hard disk drives, compressed air purification, construction equipment, mining, compressors, and trucks [6] Recent Developments - In March 2020, Donaldson's ultra-low emission filtration technology won the "2019 Blue Award," highlighting its comprehensive strength in dust collection technology and commitment to environmental responsibility [6] Event Information - The 2026 Silicon-based Anode and Solid-State Battery Summit will focus on breakthroughs in silicon-based anodes and the future of solid-state batteries [10] - The event will feature various sponsors and exhibitors from the new energy and materials sectors, showcasing advancements in silicon-based anode technology and solid-state battery innovations [12] Conference Agenda - The conference will take place on November 12-13, featuring discussions on topics such as the development of new silicon-based anode products, porous graphite-silicon-based anode materials, and the current state and trends of the solid-state battery market [13]

Financial Data and Key Metrics Changes - For fiscal year 2025, total sales reached an all-time high of $3.7 billion, with an operating profit margin of 15.7% and earnings per share of $3.68, which was at the higher end of the guidance range [6][17] - In Q4 2025, sales increased by 5% year over year to $981 million, with adjusted EPS of $1.03, up approximately 10% year over year [12][19] - Operating margin for the quarter was a record 16.4%, up 10 basis points from the prior year, with cash conversion at 123% [19][20] Business Line Data and Key Metrics Changes - **Mobile Solutions**: Total sales were $588 million, a 2% increase year over year, with aftermarket sales at $468 million, up 3% [14][15] - **Industrial Solutions**: Sales rose 8% to $310 million, with IFS sales growing 11% to $262 million [16] - **Life Sciences**: Sales increased by 14% to $82 million, driven by strong growth in food and beverage and disk drive segments [16] Market Data and Key Metrics Changes - In China, sales grew 14% year over year, marking the fourth consecutive quarter of growth, with both first fit and aftermarket sales increasing [15] - Aerospace and defense sales decreased by 6% to $47 million due to a decline in defense sales following the completion of large projects [16] Company Strategy and Development Direction - The company is focused on optimizing its cost structure while investing in growth areas such as solvent recovery and new disk drive technologies [13][29] - The strategy includes disciplined investments in R&D and capital expenditures, with a commitment to M&A opportunities primarily in life sciences and industrial businesses [29][88] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macro uncertainties and cyclical headwinds, with expectations for another record year in fiscal 2026, projecting total sales of $3.8 billion [17][27] - The company anticipates an incremental margin of approximately 40% and a continued focus on margin expansion despite challenging market conditions [27][28] Other Important Information - The company returned $465 million to shareholders through share repurchases and increased dividends by 11% [6][17] - The company is in the heavy lift phase of footprint optimization, expected to be mostly complete by 2026 [13] Q&A Session Summary Question: What is the outlook for agricultural demands? - Management noted that agricultural orders likely bottomed within the quarter, with slight growth expected but not at double-digit levels [36][37] Question: What is the status of bioprocessing solutions commercialization? - Management indicated that traditional life sciences businesses are performing well, but upstream bioprocessing remains muted, with significant growth expected more in fiscal 2027 [39][50] Question: How does the company view the connected products strategy? - Management clarified that the connected products strategy is not subscription-based but aims to deepen customer relationships, leading to increased replacement parts sales [52][53] Question: What is the outlook for the aerospace and defense segment? - Management expects aerospace and defense sales to be flat after cycling against record levels in the prior year, with a solid quote backlog [76][108] Question: How does the company plan to manage capital allocation? - The company maintains a balanced approach to capital allocation, focusing on organic growth, M&A opportunities, dividends, and share buybacks [29][88]

Financial Data and Key Metrics Changes - For fiscal year 2025, total sales reached an all-time high of $3.7 billion, with an operating profit margin of 15.7% and earnings per share of $3.68, which was at the higher end of the guidance range [5][16][18] - In Q4 2025, sales increased by 5% year over year to $981 million, with adjusted EPS of $1.03, up approximately 10% year over year [11][18] - Operating margin for the quarter was a record 16.4%, up 10 basis points from the prior year [18][22] Business Line Data and Key Metrics Changes - **Mobile Solutions**: Total sales were $588 million, a 2% increase year over year. Aftermarket sales were $468 million, up 3%, while off-road sales increased by 5% [13][14] - **Industrial Solutions**: Sales rose 8% to $310 million, with IFS sales growing 11% to $262 million [15] - **Life Sciences**: Sales increased by 14% to $82 million, driven by strong growth in food and beverage and disk drive segments [15][22] Market Data and Key Metrics Changes - In China, sales grew 14% year over year, marking the fourth consecutive quarter of growth, with both first fit and aftermarket sales increasing [14] - Aerospace and defense sales decreased by 6% to $47 million due to a decline in defense sales following the completion of large projects [15] Company Strategy and Development Direction - The company is focused on optimizing its cost structure while investing in growth areas such as solvent recovery and new disk drive technologies [12][29] - The strategy includes disciplined growth investments and maintaining a strong balance sheet to support potential M&A opportunities [29][86] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macro uncertainties and cyclical headwinds, with expectations for another record year in fiscal 2026, projecting total sales of $3.8 billion [16][27] - The company anticipates an incremental margin of approximately 40% and a continued focus on margin expansion despite challenging market conditions [27][28] Other Important Information - The company returned $465 million to shareholders through share repurchases and increased dividends by 11% [5][16] - The company is committed to maintaining its position in the S&P high yield dividend aristocrat index, with a forecasted repurchase of 2% to 3% of outstanding shares in fiscal 2026 [30][86] Q&A Session Summary Question: When did agricultural orders bottom for your team? - Management indicated that agricultural orders likely bottomed within the quarter, with slight upticks observed, but not significant growth expected in the near term [35] Question: What is the outlook for bioprocessing solutions? - Management noted that while traditional life sciences businesses are performing well, the upstream bioprocessing segment remains muted, with expectations for growth more likely in fiscal 2027 [38] Question: How is the first fit versus aftermarket revenue growth expected to trend? - Management expects first fit sales to rebound, particularly in the U.S. and Europe, while aftermarket sales are anticipated to grow due to continued market share gains [39][41] Question: What is the outlook for the power generation super cycle? - Management confirmed that the power generation business remains strong, with no signs of cooling in the super cycle, and backlog coverage is at its longest [95] Question: How does the company view its M&A pipeline? - Management expressed a strong appetite for M&A, with a good pipeline of opportunities, particularly in life sciences and industrial businesses [86]