Donaldson NYSE: DCI reported record third-quarter fiscal 2026 sales, adjusted operating margin and adjusted earnings per share, as strength in its Mobile Solutions and Life Sciences segments helped offset operational pressure in Industrial Solutions.
President and CEO Rich Lewis said the quarter marked “a significant step-up in performance” from the company’s second quarter. Total sales rose 6% from the prior year to a record $995 million, driven by currency translation, net pricing benefits and volume growth. Adjusted operating margin was 16.6%, up 30 basis points from a year earlier and 260 basis points higher than the second quarter. Adjusted earnings per share were $1.06, up 7% year over year.
Donaldson’s non-GAAP results excluded $9.8 million of pretax charges, including $9 million of restructuring and other charges and $800,000 of business development charges, according to Sarika Dhadwal, head of investor relations.
Mobile Solutions and Life Sciences Drive Growth
Mobile Solutions sales increased 8% to $630 million, supported by strong volume growth. Aftermarket sales rose 8% to $498 million, with gains in all regions and in both channels. Lewis said the company posted double-digit growth in its independent channel, where product availability, reliability and consistency continued to drive share gains.
Lewis also highlighted a “large competitive win” with a major North American fleet operator, covering air, lube and fuel products. During the question-and-answer session, he said the award was not as large as a prior NAPA win, but described it as “sizable” and strategically important because it puts Donaldson products on shelves at dealers where the company had not previously been present.
In Mobile Solutions’ first-fit businesses, off-road sales rose 9% to $104 million, led by construction, while on-road sales increased 5% to $28 million as truck production began to ramp, particularly in EMEA. Lewis said China sales in Mobile Solutions increased 6% due to strength in off-road markets, with export demand supporting Donaldson’s technology-led solutions.
Life Sciences sales increased 13% to $84 million, driven largely by new equipment volume in food and beverage and continued strength in disk drive. Lewis said food and beverage sales grew more than 30%, supported by new equipment sales and a growing installed base that is driving consumables demand.
Industrial Solutions Pressured by Operational Inefficiencies
Industrial Solutions sales declined 1% to $282 million, with volume declines partially offset by pricing and currency benefits. Within the segment, Industrial Filtration Solutions sales rose 2% to $237 million, helped by net pricing and power generation volume growth, primarily in EMEA, where new equipment sales more than doubled. Donaldson said those gains were partly offset by lower new equipment sales in industrial gases and dust collection.
Aerospace and Defense sales fell 14% to $45 million because of weaker new equipment sales. Lewis said volumes were affected by ongoing supply chain constraints and project timing. In response to an analyst question, he said the business exited the quarter with “near record backlogs” that had been increasing steadily during the year, and said the backlog could become a tailwind into fiscal 2027 as supply chain issues are resolved.
Chief Financial Officer Brad Pogalz said Industrial Solutions’ pretax margin was 13.4% in the quarter, down from 18.1% a year earlier, due to gross margin pressure from power generation production shifts and footprint optimization work. Donaldson realized about 80 basis points of pressure from shifting production to Mexico for large turbine systems in power generation, and nearly 20 basis points of pressure from plant closures and production transfers tied to footprint optimization.
Pogalz said Donaldson views the third quarter as the low point for the power generation-related pressure and expects to be fully recovered midway through fiscal 2027. The company completed the last two plant closures tied to its footprint optimization initiative during the quarter and is now focused on ramping productivity in the new locations. Pogalz said those initiatives are expected to generate about $10 million in annualized benefits once run-rate productivity is reached during fiscal 2027.
Facet Filtration Acquisition Adds Aftermarket Exposure
Donaldson closed its acquisition of Facet Filtration after the quarter ended. The business will be included in fourth-quarter consolidated results and reported in the Aerospace and Defense business unit within Industrial Solutions.
Lewis said Facet adds high-performance fuel and fluid capabilities to Donaldson’s Industrial Solutions portfolio and increases the company’s exposure to aerospace and power generation. He said about 70% of Facet’s revenue comes from recurring, regulated replacement part sales with “highly accretive margins.”
During the Q&A session, Lewis said the acquisition rationale remains intact after the company’s first post-close business review. He said Facet has natural end-market tailwinds, higher margins and higher growth rates. Donaldson expects cost synergies in the range of $4 million to $5 million, primarily from procurement. Lewis said the company did not include revenue synergies in its acquisition justification, but believes opportunities exist because Facet and Donaldson have relationships with different customers and sell complementary products.
Guidance Updated for Fiscal 2026
Donaldson raised the midpoint of its organic sales outlook and now expects consolidated organic sales growth of 3% to 5% for fiscal 2026. Pogalz said the midpoint is about 1 percentage point higher than prior guidance due to strength in Mobile Solutions and Life Sciences. Pricing and currency translation are each expected to contribute a little more than 1% to growth.
- Mobile Solutions: Sales are expected to grow 3.5% to 5.5%, slightly above prior guidance, driven by aftermarket share gains and higher vehicle utilization rates.
- Industrial Solutions: Organic sales are projected to be flat to up 2%, with Industrial Filtration Solutions expected to grow in the low single digits.
- Aerospace and Defense: Sales are expected to decline in the mid-single digits due to program timing and supply chain issues.
- Life Sciences: Sales are expected to increase 9% to 11%, up from prior guidance of 5% to 9%, reflecting strength in food and beverage and disk drive.
Donaldson now expects organic operating margin of 15.8% to 16.2%, compared with prior guidance of 16.0% to 16.4%. Pogalz said the range implies full-year organic operating margin expansion of 10 to 50 basis points, with expense leverage partially offset by gross margin pressure. Excluding Facet, adjusted EPS is projected at $3.94 to $4.01, with the midpoint representing an 8% increase from the prior year.
Facet is expected to contribute $25 million to $30 million in fourth-quarter sales, adding about 70 to 80 basis points to full-year growth. Pogalz said its operating margin impact is likely to be immaterial this year because strong business performance will be offset by amortization costs. Debt from the transaction is expected to add about $9 million of interest expense in the quarter, with net EPS dilution of about $0.03.
Cash Flow, Capital Allocation and Outlook
Donaldson expects capital expenditures of $60 million to $75 million and cash conversion of 85% to 95% for fiscal 2026. Pogalz said the company’s leverage ratio, including Facet, is approximately 1.8 times net debt to EBITDA, leaving “ample financial flexibility” to invest for growth.
The company said its capital allocation priorities remain reinvestment in the business, disciplined mergers and acquisitions, dividends and share repurchases. Pogalz noted that Donaldson has paid dividends for 70 consecutive years, increased its dividend for 30 consecutive years and recently announced a 7% dividend increase. Share repurchases have been paused as the company focuses on paying down Facet-related debt, though Pogalz said repurchases remain the company’s “variable lever.”
Lewis, who described his first 90 days as CEO as “remarkable,” said Donaldson will continue investing in attractive markets where it has a clear path to win while also evaluating its existing portfolio. He said the company exited the quarter with robust order volumes, elevated backlogs and focused execution, giving management confidence in delivering record organic sales of more than $3.8 billion for fiscal 2026.
About Donaldson NYSE: DCI
Donaldson Company, Inc NYSE: DCI is a global provider of filtration systems and replacement parts for a wide range of industries. The company develops and manufactures air, liquid and gas filtration solutions for engine and industrial applications, helping customers improve performance, lower emissions and extend equipment life. Donaldson's product portfolio includes engine air intake filters, fuel filters, hydraulic filters, compressor filters, dust collection systems and gas turbine air intake systems.
Serving markets such as agriculture, construction, mining, power generation, aerospace and original equipment manufacturing, Donaldson operates through two primary business segments: Engine Products and Industrial Products.
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