Donaldson Company reported first quarter 2020 net earnings of $65.0 million, or $0.51 per share, compared with $73.8 million, or $0.56 per share, in first quarter 2019.
First quarter 2020 sales declined 4.1 percent to $672.7 million from $701.4 million in 2019.
First quarter 2020 sales of Engine Products (“Engineâ€) decreased 4.5 percent, or 3.1 percent excluding the impact from currency translation.
Engine realized benefits from price increases of approximately 0.8 percent.
The sales increase in Aerospace and Defense was driven by new equipment in both commercial aerospace and ground defense.
The declines in Off-Road and On-Road reflect lower levels of equipment production, with continued variability by geography.
The Aftermarket decline reflects lower levels of equipment utilization, primarily in off-road markets.
First quarter sales of Industrial Products (“Industrialâ€) declined 3.2 percent, or 2.0 percent excluding the impact from currency translation.
Industrial realized benefits of approximately 3.6 percent from BOFA and 0.2 percent from pricing.
Sales of Industrial Filtration Solutions (“IFSâ€) reflect benefits from BOFA and strong growth in sales of Process Filtration products, partially offset by lower sales of new equipment.
The Gas Turbine Systems (“GTSâ€) sales decline was primarily driven by lower sales of new equipment, and the decline in sales of Special Applications (“SAâ€) was primarily driven by Disk Drive filters.
Donaldson’s first quarter 2020 earnings before interest, taxes, depreciation and amortization (“EBITDAâ€)4 rate of sales was 16.7 percent, compared with 17.1 percent in 2019.
Including the 0.4 percentage point impact from higher depreciation and amortization expense, which relate to Donaldson’s capacity expansion and supply chain optimization efforts, first quarter 2020 operating income as a rate of sales (“operating marginâ€) was 13.2 percent, compared with 14.1 percent in 2019.
The year-over change in operating margin reflects higher operating expenses as a rate of sales (“expense rateâ€), partially offset by higher gross margin.
First quarter 2020 gross margin increased 0.4 percentage points to 34.4 percent from 34.0 percent in 2019.
The gross margin increase reflects lower raw materials costs, combined with benefits from the Company’s efforts related to pricing initiatives and optimizing its supply chain, partially offset by loss of leverage on lower sales.
Donaldson’s first quarter operating expense rate was 21.2 percent, compared with 19.9 percent last year.
The increase reflects loss of leverage on lower sales, combined with higher personnel expense related to investments in support of Donaldson’s strategic growth initiatives.
First quarter 2020 interest expense was $4.7 million, compared with $4.2 million in 2019.
Other income was $2.6 million in first quarter 2020, compared with $1.9 million in 2019.
Donaldson’s first quarter 2020 tax rate was 24.9 percent, compared with 23.5 percent in 2019.
Included within the prior year rate is a tax reform-related benefit of $0.9 million, which lowered the first quarter 2019 rate by approximately 0.8 percentage points.5
During first quarter, Donaldson repurchased 1.4 million shares, or 1.0 percent, of its common stock at an average price of $47.95 for a total investment of $65.0 million.
The Company paid $26.6 million of dividends in the quarter.
Donaldson’s current guidance for fiscal 2020 sales, operating profit, EPS and capital deployment is consistent with prior guidance and is summarized below.
Donaldson expects fiscal 2020 GAAP EPS between $2.21 and $2.37, compared with fiscal 2019 GAAP and adjusted EPS of $2.05 and $2.21, respectively.
Compared with 2019, fiscal 2020 sales are projected in a range between a 2 percent decline and a 4 percent increase, including a negative impact from currency translation of 1 to 2 percent that is partially offset by price benefits of approximately 1 percent.
Compared with 2019, fiscal 2020 Engine sales are projected in a range between a 4 percent decline and a 2 percent increase, reflecting growth in Aerospace and Defense and Aftermarket, combined with lower year-over-year sales in the Company’s first-fit On-Road and Off-Road businesses.
Industrial sales are expected to increase from fiscal 2019 between 2 and 8 percent, reflecting growth in IFS and GTS, partially offset by declining sales in SA.
Within Industrial, growth in IFS is due in part to one quarter of incremental benefits from the acquisition of BOFA.
Currency translation is expected to negatively impact both segments by 1 to 2 percent. ■