Donaldson Q1 Earnings Miss View, But Sales Top; Trims 2015 Outlook

(RTTNews) - Filtration systems provider Donaldson Co., Inc. (DCI) reported Thursday a profit for the first quarter that declined nine percent from last year, reflecting lower operating margins and a revenue decline.

Earnings per share missed analysts' expectations by two cents, while quarterly sales topped their estimates. The company also trimmed earnings and revenue forecast for the full-year 2015.

"We had solid growth from our Engine Aftermarket and On-Road businesses which increased in local currencies by 9 and 17 percent, respectively. However, these strong sales increases were partially offset by a 16 percent local currency decrease from Off-Road Products, as a result of weaker conditions in the global agriculture and Asia Pacific construction and mining markets," CEO Bill Cook said in a statement.

The Minneapolis, Minnesota-based company reported net earnings of $55.95 million or $0.40 per share for the first quarter, lower than $61.59 million or $0.41 per share in the prior-year quarter.

On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.42 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter edged down to $596.51 million from $599.38 million in the same quarter last year, but topped eight Wall Street analysts' consensus estimate of $622.64 million.

"In addition, our first quarter sales were challenged by a 2 percent translation impact from the stronger U.S. dollar against most other major currencies and also as some large Gas Turbine projects originally planned to ship were rescheduled by our Customers to ship in our second quarter," Cook noted.

Engine products net sales edged up to $390.72 million from $389.12 million, and industrial products net sales declined to $205.79 million from $210.27 million in the prior-year quarter.

The company noted that foreign currency translation negatively impacted net earnings by $1.2 million or 1.9 percent, and sales by $11.1 million or 1.9 percent, during the quarter.

Operating margin for the quarter was 12.9 percent, down 240 basis points from the prior year.

Gross margin for the quarter contracted 80 basis points to 35.0 percent from last year's 35.8 percent, reflecting the negative impact of lower fixed cost absorption due to a decrease in production volumes, primarily outside the U.S.

The company said it completed the acquisition of Northern Technical during the first quarter. It anticipates Northern Technical sales to be $17 to $20 million and for it to be accretive to earnings within this fiscal year.

"We have updated our outlook for FY15 to include Northern Technical but to also reflect current weak conditions in our Off-Road Products and an ongoing translation impact from the stronger U.S. dollar," Cook added.

Looking ahead to fiscal 2015, the company trimmed adjusted earnings guidance to a range of $1.77 to $1.87 per share from the prior forecast of $1.81 to $2.01 per share. Sales are now projected between $2.50 billion and $2.60 billion, down from the previous guidance between $2.57 billion and $2.67 billion.

Street is currently looking for full-year 2015 earnings of $1.93 per share on annual revenues of $2.63 billion.

The company said earnings guidance for the year excludes restructuring and pension lump sum settlement expenses.

Looking further ahead, the company looks to execute its plan to grow to $5 billion in revenues by fiscal 2021 by continuing to make its key long-term investments and utilize its well diversified portfolio of global filter businesses, despite current conditions in some of the company's end markets remaining mixed.

DCI closed Wednesday's regular trading session at $42.75, down $0.10 on a volume of 0.50 million shares.