Donaldson Q3 Profit Declines, Narrows 2014 Earnings Outlook

(RTTNews) - Filtration systems maker Donaldson Co. Inc. (DCI) on Tuesday reported a 4 percent decline in profit for the third quarter from last year as a slight increase in sales was more than offset by higher operating expenses. Sales for the quarter missed analysts' expectations. Looking ahead to fiscal 2014, the company narrowed its earnings outlook and lowered its revenue forecast.

Bill Cook, CEO of Donaldson said, "Our end market conditions remain mixed as demand for our replacement filters continues to improve in both our Engine and Industrial segments, while conditions for new first-fit systems in our OEM markets are recovering slower than we had anticipated."

The company's net earnings for the third quarter declined to $67.34 million from $69.84 million in the year-ago period, while earnings per share were unchanged with last year at $0.46. The latest quarter's results include restructuring charges of $160 thousand, compared to restructuring charges of $911 thousand or $0.01 per share in the year-ago period.

Excluding special items, adjusted net earnings for the quarter were $67.50 million or $0.46 per share, compared to $70.75 million or $0.47 per share in the prior-year quarter. On average, 11 analysts polled by Thomson Reuters expected the company to report earnings per share of $0.47 for the quarter. Analysts' estimates typically exclude one-time items.

Net sales for the quarter edged up 1 percent to $624.23 million from $619.37 million in the year-ago period and missed analysts' consensus revenue estimate of $634.83 million. The impact of foreign currency translation lowered sales in the latest quarter by $0.6 million, or 0.1 percent.

Gross margin for the quarter was 35.8 percent, consistent with last year. However, operating margin declined 100 basis points from the year-ago period to 14.9 percent.

Operating expenses for the quarter rose 6 percent from last year to $130.73 million.

Engine Products' sales for the quarter increased 5 percent in local currency, driven by an 11 percent increase in Engine Aftermarket sales and a 13 percent increase in On-Road sales.

Meanwhile, Industrial Products' sales for the quarter decreased 7 percent in local currency, reflecting a 40 percent decline in the company's Gas Turbine shipments from last year's record third quarter.

Partially offsetting the Gas Turbine sales decrease were the company's Industrial Filtration Solutions and Special Applications businesses, which grew 8 percent and 4 percent, respectively.

Looking ahead to fiscal 2014, Donaldson now expects earnings in a range of $1.69 to $1.77 per share, compared to the prior range of $1.65 to $1.85 per share. The company now projects revenues for the year between $2.44 billion and $2.48 billion, down from the prior range of $2.45 billion to $2.55 billion.

Analysts expect the company to report fiscal 2014 earnings of $1.79 per share for the year on revenues of $2.49 billion.

Cook said, "First, the continued geopolitical uncertainty continues to negatively impact the recovery for general industrial capital investment and, as a result, the demand for our new Industrial Filtration Solutions systems. Second, several of our large gas turbine projects that were scheduled for shipment in our fourth quarter have been rescheduled by our Customers to be delivered in our FY15."

DCI is currently trading at $40.82, down $2.12 or 4.94 percent on a volume of 498,718 shares.