Donaldson Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 4, 2024

There are 9 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, and welcome to the Donaldson Company Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I'd now like to turn the call over to Sarika Dadwal, Senior Director of Investor Relations and ESG. You may begin.

Speaker 2

Good morning. Thank you for joining Donaldson's Q3 fiscal 2024 earnings conference call. With me today are Todd Carpenter, Chairman, CEO and President and Scott Robinson, Chief Financial Officer. This morning, Todd and Scott will provide a summary of our Q3 performance and details on our outlook for fiscal 2024. During today's call, we will discuss non GAAP or adjusted results.

Speaker 2

While there were no non GAAP adjustments in the Q3 of either fiscal 2024 or 2023, For the full year fiscal 2023, non GAAP results exclude pre tax restructuring and other charges of 21,800,000 dollars A reconciliation of GAAP to non GAAP metrics is provided within the schedules attached to this morning's press release. Additionally, please keep in mind that any forward looking statements made during this call are subject to risks and uncertainties, which are described in our press release and SEC filings. With that, I'll now turn the call over to Todd Carpenter. Please go ahead.

Speaker 3

Thanks, Arka. Good morning. Donaldson Company's 3rd quarter results were excellent. Sales increased 6% to a record $928,000,000 EPS increased 22% to a record $0.92 and operating margin was at more than a decade long high. All three operating segments demonstrated growth and profitability.

Speaker 3

In Mobile Solutions, volume growth exceeded pricing gains driven by strength in our aftermarket business. We continue to benefit from market share gains as well as a return to more normalized demand levels after destocking in the prior year period. Profitability in Mobile Solutions continues to be exceptional. Pre tax profit margin hit an all time high of 18.4 and pricing. In Industrial Solutions, and pricing.

Speaker 3

In Industrial Solutions, sales strength and high levels of profitability continued, driven by project wins and market share gains in dust collection and power generation. Aerospace and Defense also had a strong quarter and backlogs remain robust. We maintain focus on advancing our create, connect, replace and service model. This quarter, we acquired EZflow Filtration, an industrial services business in LaGrange, Georgia. EZflow brings to Donaldson additional service capabilities in both hydraulic and power generation filtration and in new geographic presence in the Southeast United States.

Speaker 3

In Life Sciences, we achieved sales growth above 20% and profitability through strength in our bioprocessing and disk drive businesses. We also continued to build for the future. In April, we entered into an agreement to acquire a 49% stake in Medica SPA, a leader in hollow fiber membrane technology based in Medalla, Italy. This transaction is expected to be completed through a public tender offer and includes a call option to acquire the remaining 51% stake in the company in the years to come. Donaldson and Medica have a previously established relationship through an exclusive joint development agreement allowing for the development and commercialization of hollow fiber modules in life sciences applications, including bioprocessing and food and beverage.

Speaker 3

These modules can be used with Solaris, Universe Sales Technologies and Isolair products demonstrating our vision and progress toward providing customers with a complete and differentiated product portfolio. From an operational standpoint, backlogs across all three segments remain strong indicating the overall health of our businesses for the foreseeable future. With supply chain conditions mostly supportive, Donaldson's customer focus remains steadfast as we continually work to improve on time delivery rates. This quarter, R and D, capital expenditures and M and A activity continued as we invested to meet the future needs of our customers. R and D included product development initiatives in our legacy and newly acquired businesses and we expect to grow our investment levels double digits for the full year.

Speaker 3

Capital expenditures were primarily focused on increasing capacity and expanding new products and technology, including in our Life Sciences segment. In keeping with our M and A strategic focus areas, we also deployed capital on the previously mentioned Industrial Services acquisition EZflow. Now I will provide some detail on 3rd quarter sales. Total company sales were $928,000,000 up 6% compared with prior year. Pricing contributed approximately 2%.

Speaker 3

In Mobile Solutions, total sales were $585,000,000 a 6% increase versus 2023. Mobile aftermarket sales grew 11% year over year to $445,000,000 Independent channel sales grew mid single digits from market share gains and OE channel sales were up mid teens as demand returned to more normalized levels following destocking in the prior year period. Partially offsetting the strong aftermarket performance were declines in the 1st fit businesses. Sales in on road were $36,000,000 down 6% due to lower levels of equipment production, particularly in APAC. Off road sales of $104,000,000 declined 10% as agriculture markets remain soft and business in China continues to be weak.

Speaker 3

To that end, I will touch on our Mobile Solutions business in China in aggregate where sales decreased 32% over prior year. Both 1st in and aftermarket sales declined impacted by weak overall demand and the timing of Chinese New Year, which fell into the Q3 this year versus the Q2 a year ago, resulting in fewer ship days this year. Despite the challenging nature of the China market today, we remain optimistic with respect to the long term market growth opportunities and our ability to gain share there over time. Now move on to the Industrial Solutions segment. Industrial sales increased 3% to $269,000,000 Industrial Filtration Solutions or IFS sales grew 2% to $229,000,000 due to strong dust collection replacement part sales and power generation product timing.

Speaker 3

Aerospace and Defense sales rose 6% to $41,000,000 driven by robust aerospace end market conditions. In the Life Sciences segment, sales were $74,000,000 up 24% year over year as a result of bioprocessing equipment and disk drive strength. Acquisitions added approximately $10,000,000 or 15 percentage points of sales growth due in large part to the timing of project shipments. In summary, I am proud of what the Donaldson team accomplished this quarter, driven by the strong results and our outlook for the Q4, we are increasing our full year earnings guidance, which Scott will detail. Fiscal 2024 is forecasted to be a year of record sales, record operating margin and record earnings.

Speaker 3

Now I'll turn it over to Scott, who will provide more details on the financials.

Operator

Scott? Thanks, Todd. Good morning, everyone. I want to thank our entire Donaldson team for their fantastic work this quarter. Without them, we would not have been able to deliver such a strong performance and I am confident in our collective ability to drive continued success in the future.

Operator

Before discussing our outlook for fiscal 2024, I will give additional details on the results for the Q3. Sales increased 6% versus 2023, Operating income increased 16% and EPS of $0.92 was up 22% year over year. Gross margin of 35.6 percent expanded 260 basis points above prior year from leverage on higher sales, pricing and select input cost deflation. Operating expenses as a percent of sales were 20.1% versus 18.8 percent a year ago. Expense deleveraging was largely due to higher people related costs, partially as a result of increased headcount.

Operator

Acquisition related expenses also contributed. Operating margin was 15.5%, 130 basis points above 2023, driven by gross margin expansion partially offset by operating expense deleveraging. As I always say, we are committed to higher levels of profitability on higher levels of sales and we clearly delivered that this quarter. Now I'll discuss segment profitability. As Todd mentioned, Mobile Solutions pre tax profit margin was a record of 18.4%, 3.40 basis points above prior year resulting from favorable mix, volume growth and pricing benefits.

Operator

Industrial Solutions pre tax profit margin was 18.7%, approximately flat versus prior year. We are pleased with the high levels of profitability the Industrial business has been delivering and look forward to growing this business, which will increase blended margins for the company. Our Life Sciences business generated a pre tax profit margin of approximately 1%, including a headwind from acquisitions of 16 percentage points. We are encouraged by our improved performance in the quarter. However, we are tracking below previous expectations and now expects full year profit margins to be down low single digits.

Operator

The nature of our acquisition related revenue brings with it some timing uncertainty. This layered on top of ongoing investments to support scaling has delayed our full year projected profitability inflection point. That said, our confidence in the longer term sales growth and profitability potential of our Life Science business has not wavered. Given the year to date trends we have been seeing in all three segments, with 2 of 3 tracking ahead of expectations, we are evaluating our longer term financial targets and will provide an update with our fiscal 2025 guidance during the Q4 call. Turning to a few balance sheet and cash flow statement highlights.

Operator

3rd quarter capital expenditures were approximately 21,000,000 dollars Cash conversion in the quarter was 106% on par with prior year, driven by our continued focus on working capital efficiency. In terms of other capital deployment, we returned approximately $57,000,000 to shareholders, inclusive of $30,000,000 in the form of dividends and $27,000,000 in share repurchases. We also invested $2,000,000 on the EZflow acquisition. We ended the quarter with a net debt to EBITDA ratio of 0.5 times. Now moving to our fiscal 'twenty four outlook.

Operator

1st on sales, we are narrowing our full year total sales guidance to an increase of between 4% and 6%, consistent with our prior forecast. This includes a pricing benefits of approximately 2% and a minimal impact from currency translation. For Mobile Solutions, we are forecasting an increase of between 2% 4%, unchanged from our previous expectation. Off road sales remain projected to be down low double digits as global air culture markets and China remain weak. On road markets have continued to soften, driving a reduction in our forecast to negative low single digits versus flat previously.

Operator

Our outlook for aftermarket continues to be mid single digit growth as a result of market share gains and the lapping of destocking in the prior year period. Industrial Solutions sales are expected to increase between 6% 8% with a midpoint of 7%, up from our previous guidance range which carried a midpoint of 5%. IFS sales driven by strength in dust collection and power generation are forecast to grow mid single digits in line with our prior expectations. Our outlook for Aerospace and Defense has improved and we now expect sales to grow low double digits, up from mid single digits previously as robust end market conditions continue. For Life Sciences, we are reducing our sales guidance for the full year to a mid teens increase compared with the approximate 20% growth previously forecasted.

Operator

We are pleased with and encouraged by the interest in our bioprocessing technologies and product portfolio. However, capital remains constricted in many biopharmaceutical markets, particularly for research and early stage assets. While we navigate the current challenging macro conditions, we remain focused on building out our technology and capabilities and laying the groundwork for future success. In the near term, we expect ongoing momentum in businesses such as disk drive, food and beverage and vehicle electrification. With respect to consolidated operating margin, we are reaffirming our previous guidance of 15.0% to 15.4%, which is an all time record, compared with an adjusted operating margin of 14.6% a year ago.

Operator

At the midpoint, this approximately 60 basis point year over year improvement is driven by gross margin expansion, partially offset by expense deleveraging as we maintain our commitment to investing for future profitable growth. We are adjusting our outlook for interest, other income and tax. Interest is expected to be approximately $22,000,000 down slightly from $23,000,000 previously. Other income is projected between $15,000,000 $17,000,000 up from prior guidance of $10,000,000 to $12,000,000 due to better than expected joint venture income and FX benefits. Our tax rate is forecast between 23% 24%, down 100 basis points from prior guidance.

Operator

For EPS, we are increasing our outlook to between $3.33 $3.39 a $0.32 or 11% increase at the midpoint from adjusted EPS of 3 point 0 $4 in fiscal 2023. With 3 quarters of the year behind us, we are pleased with our performance and better positioned than ever to deliver to all our stakeholders in fiscal 2024 and beyond. Now on to our balance sheet and cash flow outlook. Cash conversion is forecasted above historical averages at 95% to 100 and 5% for the full year. Capital expenditures weighted towards growth investments, including capacity and new products and technologies are projected between $90,000,000 to $105,000,000 down slightly from the previous $95,000,000 to $110,000,000 range.

Operator

Capital deployment is vital for Donaldson and our strategy is unchanged. First, we are focused on reinvesting back into the company either organically or inorganically through M and A as we continue to demonstrate. We also look to return value to shareholders through our dividends and share repurchases. Last week, we announced an 8% increase in our quarterly cash dividend and we intend to repurchase approximately 2% of our shares outstanding this fiscal year. Now, I'll turn the call back to Todd.

Speaker 3

Thanks, Scott. I am more confident than ever in the Donaldson team, our long term strategy, technology pipeline and ongoing investments. We are committed to working toward our Investors Day targets, both our fiscal 2026 financial objectives as well as our 2,030 ESG ambitions. During the quarter, we published our fiscal 2023 sustainability report, which can be accessed on our website or via the QR code within our earnings slide presentation. The report highlights our sustainability strategy, which is underpinned by creating sustainable value through our products, fostering a safe and diverse environment for our people, and operating sustainably with a focus on our planet.

Speaker 3

I'll touch on a few recent highlights in these areas. Products. We are proud of our innovative technology and development capabilities in life sciences. In May, we announced our partnership with Polypeptide Group to improve sustainability in the manufacturing of peptides, which are active pharmaceutical ingredients used in various medical therapies. Our collaboration on the development of a production scale solvent recovery system marks a milestone in the pharmaceutical industry's pursuit of environmentally friendly manufacturing processes.

Speaker 3

Donaldson is also creating sustainable value through our life changing technologies. We are currently supporting over 140 therapies, including 50 proofs of concept and 90 drug development programs where our technologies are utilized by customers to trial, develop and scale processes crucial for advancing cell and gene therapies and RNA and traditional vaccines. Many of these programs are currently in the preclinical stage. However, we do have some that are in clinical trials and a few that are likely to enter commercial production this calendar year. Importantly, these include customers that originated both organically and via our Universe Sales, Pure Logix and Isolair acquisitions demonstrating the power of our M and A strategy.

Speaker 3

Now, on our people and our planet, we have made notable progress toward our 2,030 people and planet ambitions, including promoting safety and diversity and operating sustainably. Many of our achievements are documented in our sustainability report and much of our work has been publicly recognized. For 2024, Donaldson is included in the U. S. News and World's Report, Best Companies to Work For and Newsweek's List of Greatest Workplaces for Diversity and America's Most Responsible Companies.

Speaker 3

To close, I am proud of this team and the work we are doing and want to thank all of our valued Donaldson employees. With that, I will now turn the call back to the operator to open the line for questions.

Speaker 1

Thank you. We will now begin the question and answer Your first question comes from the line of Angel Castillo from Morgan Stanley. Your line is open.

Speaker 4

Hi, good morning and thanks for taking the question. Just wanted to touch base a little bit more on the view for the full year outlook on operating margins, strong performance here and you talked about, obviously, continuation of that. So just curious if you could just unpack a little bit more kind of the views on operating margin, why not raise that for the full year and just kind of the input here for the Q4?

Operator

Yes. Good morning. This is Scott. So mean, we're pleased with the excellent quarter that we delivered. Operating margin in the quarter was 15.5%.

Operator

That's 130 basis points improvement. With the midpoint of the guide at 15.2%, if you did the math, you'd see we expect another increase in the Q4 in our operating margin sequentially and over the prior year by quite a significant number. So we feel pretty good about our at the midpoint 60 basis point operating margin improvement guided for this year, strong performance and we decided to expect the previously contemplated improvements in the Q4 to come through. So we feel pretty good about where we sit and that's where we left the guidance.

Speaker 4

That's helpful. Thank you. And then could you unpack a little bit more on Sciences? I think, as I recall, after kind of fiscal 2Q, there was a number of factors that give you confidence there in the plus 20%. So it sounds like some of those maybe timing or some of those investments may have kind of changed.

Speaker 4

So just can you help us understand what's kind of changed and has that just essentially gotten pushed out to fiscal 2025 or are there other factors at play in terms of expectations here?

Speaker 3

Sure. As we went into the quarter, we had the backlog to be able to support our previous guide that was clear. What was interesting is we were able to get some of those projects that we have been previously talking about in quarters, the lumpiness of that, we were able to deliver some of that. Some of that actually has pushed a little bit more than our expectation. And then also as you look at the bioprocessing side, a little bit more carefulness on the incoming orders is what we experienced within the quarter.

Speaker 3

So overall, a little bit more movement than we would have expected is really the reason for the change.

Speaker 4

Very helpful. Thank you.

Speaker 1

Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.

Speaker 5

Hi. This is Dan Rizzo on for Laurence. Thank you for taking my question. I was just wondering given the growth outlook, how we should think about CapEx kind of over the next 2 to 3 years? I mean, should it continue at this kind of rate?

Speaker 5

Are we coming to the end of the I mean, to the kind of large investment cycle? Or is it going to accelerate? Just thinking longer term?

Operator

Yes, I mean, this is Scott. Good morning. On our Investor Day meeting, we said we expected all contemplated CapEx to be able to be completed at a maximum rate of 3.5% for sales. We still expect that to be the case. I think our Industrial Solutions and Mobile Solutions business are very well capitalized and really performing well and have a great level of invested capital for the future that they can see.

Operator

We do expect to continue to invest in life sciences, with some of the great opportunities that we have in front of us, But we expect to be able to do that within that original guide of 3.5% of revenues at most.

Speaker 5

That's very helpful. And then in terms of pricing, given where we are, I mean, the environment we're in, are we moving more back towards kind of a more historic environment? Well, there'll be some pricing, but with cost input cost kind of in check, it'll be, I don't know, I guess more modest going forward, same thing with cost, I guess, and overall?

Speaker 3

Yes. So when you take a look at our pricing behaviors now, we have definitely returned back to a more normal pricing behavior and a normal cadence across the company and across the entirety of our business portfolio for sure. I do though want to point out that a lot of people talk about what's happening in the raw materials based markets. But overall, while some of the inflation has abated on a selective based material or commodity, it's not across the full ramifications of cost to our company. When you look at some of the commodities are still feeling some headwinds, you've got freight with headwinds, certainly we have labor headwinds.

Speaker 3

So it's still a mixed environment, really supporting a more really a more careful approach to pricing. But pricing actions within our company are certainly not experiencing the headwinds that may be advertised in the markets.

Speaker 6

All right.

Speaker 5

Thank you very much.

Speaker 1

Your next question comes from the line of Nathan Jones from Stifel. Your line is open.

Speaker 6

Thank you. Good morning. This is Adam Farley on for Nathan. I wanted to start with operating expenses. What should we expect from operating expenses in the short to medium term?

Speaker 6

Are the life science businesses structurally higher SG and A or should balance be able to leverage these expenses back into the high teens? Thanks.

Speaker 3

Yes. So when you take a look at what we're doing, right, and you just ground that to our Investor Day targets, Mobile is above Investor Day targets, Industrial is above Investor Day targets and we're building a business out into the life sciences side. So as we continue to invest to build on our life sciences, surely, we have those kind of increases that you're seeing. We would expect to continue our investment levels in life sciences and where we see opportunity, we'll press those even harder. And so that will in the short term, keep that a bit elevated.

Speaker 3

But over time as that business continues to build, certainly we would see that renormalize back into company averages. And in fact, potentially given the hockey stick nature of some of those investments that we have, could actually drive the company a bit lower than a high teens numbers that is typically referenced.

Speaker 6

Okay. That's helpful. And then I wanted to touch on disk drives. 2023 was a softer market. You saw soft end markets and inventory corrections.

Speaker 6

Is the business back to a more normalized level of revenue today or do you expect some more challenges there?

Speaker 3

Yes, it's certainly back to a more normalized level as far as a little bit of increasing. So it is stepping forward. It's actually growing. Certainly the bottom is behind us. We're hiring people again.

Speaker 3

We're in our discharge manufacturing plants. The customers' expectations are ramping up, certainly. So that reset is behind us and now we fully expect to walk forward a little bit in that business.

Speaker 6

Thank you for taking my questions.

Speaker 1

Your next question comes from the line of Brian Drab from William Blair. Your line is open.

Speaker 7

Hey, good morning. This is Tyler on for Brian. Appreciate you guys taking my questions. I was just wondering if you could elaborate more on what about the reduction in the on road guidance, what markets are particularly softening?

Speaker 3

Well, within on road, it's long haul trucks, right. So, and particularly, it would be just slight softening within the U. S. Base type of vehicle manufacturing markets is really where that's focused. But just slightly, They're still at pretty high levels.

Speaker 3

Got it. And the other place we yes, the other place in the on road, I guess, where we have a little bit of headwinds would be China,

Speaker 8

because of

Speaker 3

the program and kind of the fits and starts there. Okay.

Speaker 7

Makes sense. And just to follow-up, can you just kind of summarize the near term revenue ops in bioprocessing? Like what just remind us of what exactly is going to market first and kind of the timeline of all those products? Thank you.

Speaker 3

Yes, sure. So there's quite a broad based portfolio within that business sector, if you will, within that vertical. You have our disk drive based businesses, but you also had food and beverage and we continue to expect growth out of our food and beverage based business. We're pressing that really quite nicely. And we would expect that to grow.

Speaker 3

We have vehicle electrification in there. Those two businesses and some of the technology that branches across those businesses also go within our some of our medical based applications. That's where we use some of the same polymer based manufacturing techniques. And therefore that's why it's within that particular vertical. But it gives us a broad portfolio of opportunity to really be able to rise, but vehicle electrification is positive.

Speaker 3

The headwinds are more within the bioprocessing sector. So our universal cells technologies, our Isolare Bio, which is pre revenue, and our PureLogic, which is pre revenue, those kind of investments continue to as we ramp those up continue to give us a little bit of headwind.

Speaker 7

Okay. Just to confirm, the universe sales is the only one driving revenue right now within bioprocessing?

Speaker 3

Of the acquisitions, Universalis is driving revenue, yes. Isolair and Pure Logix have some lab support based revenue, but it's very, very small as we continue to populate laboratories in support of the therapy based programs that we referenced within script.

Speaker 7

Okay. Thank you, Todd. Appreciate it. I'll pass it on. All right.

Speaker 7

Thank you.

Speaker 1

Your next question comes from the line of Rob Mason from Baird. Your line is open.

Speaker 8

Yes, good morning. It's good to hear about the commentary around continued share gains in the mobile aftermarket part of the business. I was curious though is, as those are layering in, is that distorting your seasonal normal seasonality in that business? And the reason I ask is that you guided or kept the guidance for that part of the business at mid single digit for the full year. But just given what typical Q4 seasonality looks like, it would normally be up and that's not really evident in the mid single digit.

Speaker 8

So is that just conservatism on the outlook or is there some dynamics just as the share gains are layering in?

Speaker 3

Yes, great question. Thanks, Rob. So, let me break some things down for you. So, when you look at our mobile aftermarket, certainly, we had a nice quarter, up 11%. Let me break that down into OE.

Speaker 3

So OE was up mid teens, right? And then the independent channel was up high single digits. And so where you really see the seasonality when you go back to comp, the old OE side is in the OE side up the teens, okay. But you've had such easy comps from last year, we've now returned that business back to where it was pre destocking. And so you see the pull through coming through now on that business as it's returned, which is really a surefire sign of the seasonality we would typically see.

Speaker 3

And as you know, from Polycom for so long, that really is why our model is more of a 48% in the first half of the year and 52% in the second half. So we are seeing that seasonality to support that 52% company revenue in the second half. It just I can understand why it may not be quite so obvious, But specifically in that OE aftermarket channel, we are definitely seeing it. And then on the independent channel, it's clearly share gain.

Speaker 8

Yes. Just maybe stick just on mobile, again, the profitability there continues to come through really strongly. I guess at a pretax level, to what degree is the JV income influencing that or is it influencing that to support such high incrementals? And how sustainable would you think that the JV income if that's a contributor would be?

Speaker 3

It's not really appreciable in its contribution to be honest. But where it certainly is, we would expect it to be sustainable. Our JVs now as a result of the volume increases that we've experienced are functioning much better than they were within the model a couple of years ago for sure. But it's not really the story.

Speaker 8

Okay. And just a question on the IFS business. How was the incoming quotes on the equipment side? You commented on the aftermarket piece being healthy. I'm just curious what you're seeing on quoting on the equipment side and how that could play into the balance of the year relative to backlog as well?

Speaker 3

About the same as we were last quarter. So we would say it's slightly elongated. So it just ever so slightly like by a month or so. So if you go back to normal quote to order kind of thing, it would be measured in say 6 to 8 weeks, maybe 4 to 8 weeks and now it might be 6 to 10 weeks kind of a thing. So it all feels just a little bit more careful and but you're still seeing large projects, so multimillion dollar projects within dust collection.

Speaker 3

So you get capacity expansion, etcetera. And for us, you still have strong overall plant usage because our aftermarket business continues to continues to gain share and grow. But overall, the business is comfortable and really much as it was at the end of Q2.

Speaker 8

I see. Just last question, if I could. The Medica stake that you're acquiring is pretty interesting getting access to that hollow fiber membrane technology. Just you commented on some joint development work that's already been ongoing there. What's the current status of that?

Speaker 8

And what would be the outlook for revenue

Speaker 3

So what we're Sure. So what we're developing with Medica and have been for a number of quarters already is tangential flow filtration for bioprocessing to support our overall bioprocessing strategy. It is going to take us some time to develop and get those products released. I would certainly not expect any revenue this year. We do have to go through an approval process of being able to utilize those particular products.

Speaker 3

But certainly, sometime next fiscal year, late next fiscal year, it would likely see revenue. The overall filters that we're doing go into lab based applications, bioreactor productions, cell culture type of expansion processes, all within bioprocessing, and really help to improve yields within those processes. So it's a fundamental filtration technology that Donaldson Company does not have in its portfolio today. So we're really excited about what it brings to the corporation.

Speaker 8

Very good. I'll turn it back. Thank you.

Speaker 1

And that concludes our question and answer session. I will now turn the call back over to President and CEO, Todd Carpenter for closing remarks.

Speaker 3

That concludes the call today. Thanks to everyone who participated and I look forward to reporting our Q4 fiscal 2024 results in August. Have a great day. Goodbye.

Speaker 1

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Key Takeaways

  • Record Q3 results: Sales rose 6% to $928 M, EPS climbed 22% to $0.92, and operating margin hit a decade-high 15.5%, with all three segments contributing growth.
  • Segment momentum: Mobile Solutions aftermarket grew 11% and achieved an all-time 18.4% pretax margin, Industrial Solutions posted 3% sales growth with robust dust collection and aerospace markets, and Life Sciences delivered 24% revenue growth amid bioprocessing strength.
  • Strategic acquisitions: Donaldson completed the EZflow industrial services deal and endorsed a path to full ownership of Italy’s Medica SPA to broaden hydraulic, power generation and hollow fiber membrane capabilities.
  • Outlook upgrade: Fiscal 2024 sales are now guided up 4–6%, EPS to $3.33–3.39, with records anticipated in sales, operating margin and earnings, driven by 2–4% Mobile, 6–8% Industrial and mid-teens Life Sciences growth.
  • Investments & capital efficiency: R&D spending is set to expand double-digits, CapEx will stay below 3.5% of sales, cash conversion topped 100% in Q3, and $57 M was returned to shareholders via dividends and buybacks.
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Earnings Conference Call
Donaldson Q3 2024
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