A month has gone by since the last earnings report for Donaldson (DCI). Shares have added about 3.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Donaldson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Donaldson's Q3 Earnings & Revenues Top Estimates, Increase Y/Y
Donaldson reported third-quarter fiscal 2026 (ended April 30, 2026) adjusted earnings of $1.06 per share, which topped the Zacks Consensus Estimate of $1.05. The bottom line was up 7.1% on a year-over-year basis.
Revenue Results
Total revenues of $995.1 million surpassed the Zacks Consensus Estimate of $979 million. The top line increased 5.8% year over year.
Region-wise, Donaldson’s net sales in the United States/Canada increased 1.5% year over year to $427.1 million. Net sales increased 11.5% to $289.3 million in Europe, the Middle East and Africa. Latin America generated net sales of $105.9 million, reflecting an increase of 4.4%. Also, net sales in the Asia Pacific improved 9.2% to $172.8 million.
Donaldson reports revenues under three segments, namely Mobile Solutions, Industrial Solutions and Life Sciences.
A brief snapshot of segmental sales is provided below.
The Mobile Solutions segment’s (accounting for 63.3% of net sales) sales were $629.9 million, indicating a year-over-year increase of 8.1%. Sales rose 8.8% in Off-Road and increased 5.2% in On-Road businesses during the quarter. Aftermarket sales improved 8.1% year over year.
Revenues generated from the Industrial Solutions segment (28.3%) were $281.7 million, down 0.6% year over year. Industrial Filtration Solutions' sales increased 2.3% year over year. Sales decline of 13.5% in the Aerospace and Defense businesses affected the results.
Revenues generated from the Life Sciences segment (8.4%) were $83.5 million, up 12.7% year over year. The results benefited from growth in new equipment volume in the Food & Beverage and Disk Drive businesses.
Donaldson’s Margin Profile
In the fiscal third quarter, Donaldson’s cost of sales increased 7% year over year to $661.7 million. Gross profit increased 3.6% to $333.4 million. The gross margin of 33.5% declined 70 basis points due to operating inefficiencies associated with production shifts and costs related to footprint optimization initiatives. Selling, general and administrative expenses were $158.9 million, up 4.3% year over year.
Operating expenses were down 24% year over year to $178.1 million. Operating profit surged 77.7% to $155.3 million. The adjusted operating margin was 16.6%, up 30 bps year over year.
The adjusted effective tax rate was 23.8% compared with 22.1% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the fiscal third quarter, Donaldson’s cash and cash equivalents were $204.1 million compared with $180.4 million in the fourth quarter of fiscal 2025. Long-term debt was $591.6 million compared with $630.4 million in the fourth quarter of fiscal 2025.
In the fiscal third quarter, the company generated net cash of $135.4 million from operating activities, indicating an increase of 54.4% year over year. Capital expenditure (net) totaled $23.8 million compared with $14.7 million in the year-ago fiscal quarter. Free cash flow increased 52.9% to $111.6 million.
It used $108.5 million to repurchase stocks and $104 million to pay out dividends during the first nine months of fiscal 2026.
Donaldson’s FY26 Outlook
For fiscal 2026 (ending July 2026), Donaldson expects adjusted earnings per share (EPS) to be in the range of $3.94-$4.01 compared with $3.68 in fiscal 2025. Organic sales are anticipated to increase 3-5% from the fiscal 2025 level.
On a segmental basis, Mobile Solutions’ sales are expected to increase 3.5-5.5% from the fiscal 2025 level. Industrial Solutions’ sales are envisioned to increase in the range of 0-2% from the year-ago figure. The company forecasts its Life Sciences segment’s sales to increase in the 9-11% range.
Interest expenses are predicted to be approximately $26 million, while other income is projected to be in the range of $17-$19 million. The effective tax rate is anticipated to be between 22% and 24%.
Capital expenditure is expected to be between $60 million and $75 million. Free cash flow conversion is anticipated to be in the range of 85-95%. Donaldson expects to repurchase 1.2% of its outstanding shares during the fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Donaldson has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Donaldson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Donaldson Company, Inc. (DCI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).