Donaldson Company Tanks on Soiled Earnings, Sooty Guidance

Donaldson Company, Inc. DCI is down big on Friday after coming up short on third-quarter earnings and revenue and issuing lousy guidance. The Minneapolis-based firm's EPS remained flat year-over-year at $0.46, but missed estimates of $0.49. Revenue dropped 4.3 percent to $619 million, falling far short of the over $659 million Wall Street consensus. Commenting on the weak quarter, CEO Bill Cook noted that gas turbine product sales jumped and the company “achieved solid sales growth in several regions including Latin America, South Africa, and India.” However, Cook went on to state, “But these strong performances were offset by significant declines in our Engine Products' OEM businesses in the U.S. and Japan. During the quarter, we continued to see many of our major OEM On-Road and Off-Road Customers reduce their equipment production schedules in response to their weaker end-market demand.” Stuck in the Mud Donaldson's engine products segment dropped 5.8 percent during the quarter to $383.31 million. Within this segment, off-road product sales declined 6.5 percent. On-road products fared far worse, dropping 28 percent. Retrofit emissions products fell 18.4 percent while aerospace & defense products declined a more modest seven percent. Aftermarket products dipped a bit over one percent, marking the only portion of this segment that didn't drop substantially. Gas Rises Gas turbine products helped keep the industrial products segment afloat, spiking nearly 35 percent. The other two portions of this segment – industrial filtration solutions products and special applications products – fell about eight and 21 percent, respectively. Overall, the segment declined 1.7 percent to a bit over $236 million. Sooty Guidance Donaldson anticipates a full-year sales decline of two to four percent, primarily on decreased demand from on-road OEM customers and the slowdown in U.S. Military activity. This would place the filtration systems manufacturer's sales in the $2.40-$2.45 billion range, which would miss the $2.51 billion analysts expect. The company believes EPS will finish in the $1.57 to $1.65 range, which would not satisfy the $1.69 analysts would like to see. One bright spot, however, is expected in its gas turbine product sales. Sales in this regard are expected to soar 27 to 30 percent on continued strength in the large turbine power generation and oil & gas markets. Dusty Day on Wall Street Donaldson's weak quarter and lackluster guidance have sent it tumbling as the week comes to a close. The stock is at a 10-day low of a bit below $36.50 in the morning hours of trading. Donaldson Company is down approximately 4.5 percent on Friday.