Exhibit 99.1
FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
DONALDSON REPORTS RECORD SECOND QUARTER RESULTS
18 percent sales growth drives 19 percent EPS increase;
reaffirming full year EPS guidance of $1.72 to $1.82 per share
MINNEAPOLIS, MN (Feb. 22, 2007) — Donaldson Company, Inc. (NYSE: DCI) announced record second quarter diluted earnings per share (“EPS”) of $.38, up from $.32 last year. Net income was $31.3 million, versus $26.9 million last year. Sales were a record $463.7 million, up from $392.9 million in fiscal 2006.
For the six month period, EPS was another record at $.81, up from $.69 last year. Net income increased 14 percent to $67.3 million compared to $59.1 million last year. Sales were a record $910.2 million, up 14 percent from $796.3 million in fiscal 2006.
“Sales growth was very strong during the quarter, supporting our outlook for another record year,” said Bill Cook, Chairman, President and CEO. “Our sales were especially good in Europe and Asia, where solid economic conditions and our well-developed market presence combined to deliver growth in excess of 25 percent in both regions. Our year-to-date operating margin of 10.6 percent compares favorably to 10.2 percent a year ago. Global economic conditions remain healthy for most of our businesses, giving us confidence in delivering our 18th consecutive year of record earnings.”
Income Statement Discussion
Translated at constant exchange rates, sales increased $56.9 million, or 14.5 percent, during the quarter and $95.7 million, or 12.0 percent, year-to-date. The impact of currency translation increased the reported sales growth to $70.8 million, or 18.0 percent, for the quarter and to $113.8, or 14.3 percent, for the year. The impact of foreign currency translation increased reported net earnings by $1.7 million in the quarter and $2.5 million year-to-date.
Gross margins of 30.5 percent for the quarter and 31.3 percent year-to-date compare to prior year margins of 31.8 percent and 32.2 percent for the same periods. During the first half of the fiscal year, we have brought on new distribution capacity while Customer demand ramped up beyond our expectations, leading to higher than expected distribution costs. Over the next few quarters, we will be making investments in people, processes, and technology to further optimize our distribution capabilities. Gross margin was also impacted by a higher mix of system sales versus replacement parts during the quarter. Operating expenses for the quarter were 21.2 percent of sales, down from 22.1 percent in the prior year. Our second quarter included $2.5 million for the majority of our annual stock option expense, compared to $2.2 million last year. Operating expenses for the year were 20.7 percent of sales, down from 22.0 percent last year.
The effective tax rates of 25.6 percent for the quarter and 28.7 percent year-to-date compare to 28.4 percent and 27.5 percent for the same periods of the prior year. The lower tax rate in the quarter is primarily due to the impact of the reinstatement of the Research and Experimentation Tax Credit retroactive to January 1, 2006.
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Donaldson Company, Inc.
February 22, 2007
Page 2
As a part of our ongoing share repurchase program, we repurchased 1,660,100 shares during the quarter for $58.2 million. Year-to-date, we have repurchased 1,759,800 shares for $61.9 million.
Outlook
Engine Products: We continue to expect mid-single digit percent full year sales growth in fiscal 2007 including the impact of the projected NAFTA new truck production decline.
| • | NAFTA heavy duty truck build rates are expected to decrease significantly with the implementation of the new EPA diesel emission standards. We expect our NAFTA truck product related sales to decrease $30 to $35 million during the second half of fiscal 2007 compared to the second half of fiscal 2006. |
| • | Strong international conditions are expected to continue in the production of new construction and mining equipment by our OEM Customers. NAFTA non-residential and public construction markets are expected to remain healthy. |
| • | Both our NAFTA and international aftermarket sales are expected to continue growing with strong equipment utilization, the ongoing growth by our OEM Customers of their replacement parts business, and the increasing amount of equipment in the field with our PowerCore™ filtration systems. |
| Industrial Products: We expect low- to mid-teens percent sales growth in fiscal 2007. |
| • | Our industrial filtration sales are expected to continue growing as a result of the healthy global manufacturing investment and production utilization conditions. |
| • | Our full year gas turbine sales should continue rebounding with our full year sales increasing approximately 20 to 25 percent over last year. Strength is seen in both the international power generation and the global oil and gas segments we serve. |
| • | Conditions for our special applications products are expected to remain good due to continued strength in our global end markets. |
| Other: |
| • | Our tax rate is expected to be 28 to 30 percent for the full year although our rate will vary by quarter due to country earnings mix and discrete events. |
| • | We expect our full year fiscal 2007 EPS to be between $1.72 and $1.82 per share. |
(more)
Donaldson Company, Inc.
February 22, 2007
Page 3
About Donaldson Company, Inc.
Donaldson is a leading worldwide provider of air and liquid filtration systems and replacement parts that improve people’s lives, enhance our Customers’ equipment performance and protect our environment. We are a technology-driven company committed to satisfying our Customers’ needs for diesel engine equipment and industrial filtration solutions through innovative research and development, superior technology, and global presence. Our 12,000 employees contribute to the company’s success by supporting our Customers at more than 100 sales, manufacturing, and distribution locations around the world.
Donaldson is a member of the S&P MidCap 400 Index, and Donaldson shares are traded on the NYSE under the symbol DCI. Additional company information is available atwww.donaldson.com.
SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995
The company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) and is making this cautionary statement in connection with such safe harbor legislation. This announcement contains forward-looking statements, including forecasts, plans and projections relating to our business and financial performance, which involve uncertainties that could materially impact results.
The company wishes to caution investors that any forward-looking statements are subject to uncertainties and other risk factors that could cause actual results to differ materially from such statements, including but not limited to risks associated with: currency fluctuations, commodity prices, world economic factors, political factors, the company’s international operations, highly competitive markets, governmental laws and regulations, and other factors included in our Annual and Quarterly Reports. We undertake no obligation to publicly update or revise any forward-looking statements.
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Donaldson Company, Inc.
February 22, 2007
Page 4
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars, except share and per share amounts)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Net sales |
| $ | 463,740 |
| $ | 392,915 |
| $ | 910,159 |
| $ | 796,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 322,524 |
|
| 268,133 |
|
| 625,077 |
|
| 539,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
| 141,216 |
|
| 124,782 |
|
| 285,082 |
|
| 256,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
| 98,334 |
|
| 86,978 |
|
| 188,514 |
|
| 175,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 42,882 |
|
| 37,804 |
|
| 96,568 |
|
| 81,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
| (2,377 | ) |
| (2,301 | ) |
| (3,907 | ) |
| (5,230 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 3,234 |
|
| 2,508 |
|
| 6,117 |
|
| 4,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
| 42,025 |
|
| 37,597 |
|
| 94,358 |
|
| 81,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
| 10,750 |
|
| 10,688 |
|
| 27,078 |
|
| 22,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 31,275 |
| $ | 26,909 |
| $ | 67,280 |
| $ | 59,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
| 80,778,686 |
|
| 82,992,797 |
|
| 81,048,226 |
|
| 83,506,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
| 82,699,272 |
|
| 85,101,072 |
|
| 83,091,583 |
|
| 85,641,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share |
| $ | .39 |
| $ | .32 |
| $ | .83 |
| $ | .71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share assuming dilution |
| $ | .38 |
| $ | .32 |
| $ | .81 |
| $ | .69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share |
| $ | .090 |
| $ | .080 |
| $ | .180 |
| $ | .160 |
|
(more)
Donaldson Company, Inc.
February 22, 2007
Page 5
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
|
| January 31 |
| July 31 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 35,334 |
| $ | 45,467 |
|
Accounts receivable – net |
|
| 322,916 |
|
| 312,214 |
|
Inventories – net |
|
| 175,612 |
|
| 153,165 |
|
Prepaid expenses and other current assets |
|
| 60,545 |
|
| 50,559 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 594,407 |
|
| 561,405 |
|
|
|
|
|
|
|
|
|
Other assets and deferred taxes |
|
| 245,181 |
|
| 245,298 |
|
Property, plant and equipment – net |
|
| 338,225 |
|
| 317,364 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 1,177,813 |
| $ | 1,124,067 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
| $ | 156,318 |
| $ | 163,783 |
|
Employee compensation and other liabilities |
|
| 102,567 |
|
| 112,606 |
|
Notes payable |
|
| 154,023 |
|
| 73,368 |
|
Income taxes payable |
|
| — |
|
| 3,571 |
|
Current maturity long-term debt |
|
| 6,307 |
|
| 6,541 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 419,215 |
|
| 359,869 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 95,544 |
|
| 100,495 |
|
Other long-term liabilities |
|
| 111,713 |
|
| 116,901 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 626,472 |
|
| 577,265 |
|
|
|
|
|
|
|
|
|
Equity |
|
| 551,341 |
|
| 546,802 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
| $ | 1,177,813 |
| $ | 1,124,067 |
|
(more)
Donaldson Company, Inc.
February 22, 2007
Page 6
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
| Six Months Ended |
| ||||
|
| 2007 |
| 2006 |
| ||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 67,280 |
| $ | 59,107 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 23,520 |
|
| 22,661 |
|
Changes in operating assets and liabilities |
|
| (66,577 | ) |
| (11,673 | ) |
Payment of litigation judgment |
|
| — |
|
| (14,170 | ) |
Tax benefit of equity plans |
|
| (4,541 | ) |
| (11,965 | ) |
Stock option expense |
|
| 2,789 |
|
| 2,424 |
|
Other, net |
|
| (2,739 | ) |
| 5,157 |
|
Net cash provided by operating activities |
|
| 19,732 |
|
| 51,541 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenditures on property and equipment |
|
| (36,140 | ) |
| (28,611 | ) |
Acquisitions, investments and divestitures, net |
|
| (694 | ) |
| (4,436 | ) |
Net cash used in investing activities |
|
| (36,834 | ) |
| (33,047 | ) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
| (61,890 | ) |
| (48,126 | ) |
Net change in debt |
|
| 74,902 |
|
| (29,045 | ) |
Dividends paid |
|
| (14,521 | ) |
| (13,293 | ) |
Tax benefit of equity plans |
|
| 4,541 |
|
| 11,965 |
|
Exercise of stock options |
|
| 3,646 |
|
| 2,207 |
|
Net cash provided by (used in) financing activities |
|
| 6,678 |
|
| (76,292 | ) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| 291 |
|
| 94 |
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
| (10,133 | ) |
| (57,704 | ) |
|
|
|
|
|
|
|
|
Cash and cash equivalents - beginning of year |
|
| 45,467 |
|
| 134,066 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of period |
| $ | 35,334 |
| $ | 76,362 |
|
(more)
Donaldson Company, Inc.
February 22, 2007
Page 7
SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
|
| Engine |
| Industrial |
| Corporate & |
| Total |
| |||
3 Months Ended January 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 253,338 |
| $ | 210,402 |
| — |
| $ | 463,740 |
|
Earnings before income taxes |
|
| 27,725 |
|
| 17,161 |
| (2,861 | ) |
| 42,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended January 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 226,584 |
| $ | 166,331 |
| — |
| $ | 392,915 |
|
Earnings before income taxes |
|
| 25,030 |
|
| 13,067 |
| (500 | ) |
| 37,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 Months Ended January 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 517,264 |
| $ | 392,895 |
| — |
| $ | 910,159 |
|
Earnings before income taxes |
|
| 66,544 |
|
| 33,334 |
| (5,520 | ) |
| 94,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 Months Ended January 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 465,008 |
| $ | 331,303 |
| — |
| $ | 796,311 |
|
Earnings before income taxes |
|
| 56,204 |
|
| 28,151 |
| (2,860 | ) |
| 81,495 |
|
NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Engine Products segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-road products |
| $ | 80,353 |
| $ | 71,660 |
| $ | 160,363 |
| $ | 141,826 |
|
Transportation products |
|
| 42,766 |
|
| 42,528 |
|
| 93,921 |
|
| 88,738 |
|
Aftermarket products |
|
| 130,219 |
|
| 112,396 |
|
| 262,980 |
|
| 234,444 |
|
Total Engine Products Segment |
| $ | 253,338 |
| $ | 226,584 |
| $ | 517,264 |
| $ | 465,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Products segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial filtration solutions products |
| $ | 127,045 |
| $ | 103,755 |
| $ | 245,572 |
| $ | 209,643 |
|
Gas turbine products |
|
| 43,463 |
|
| 28,416 |
|
| 69,512 |
|
| 52,779 |
|
Special applications products |
|
| 39,894 |
|
| 34,160 |
|
| 77,811 |
|
| 68,881 |
|
Total Industrial Products segment |
| $ | 210,402 |
| $ | 166,331 |
| $ | 392,895 |
| $ | 331,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company |
| $ | 463,740 |
| $ | 392,915 |
| $ | 910,159 |
| $ | 796,311 |
|
(more)
Donaldson Company, Inc.
February 22, 2007
Page 8
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Free cash flow |
| $ | (15,699 | ) | $ | 5,520 |
| $ | (16,408 | ) | $ | 22,930 |
|
Net capital expenditures |
|
| 18,126 |
|
| 15,268 |
|
| 36,140 |
|
| 28,611 |
|
Net cash provided by operating activities |
| $ | 2,427 |
| $ | 20,788 |
| $ | 19,732 |
| $ | 51,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
| $ | 56,768 |
| $ | 50,957 |
| $ | 123,416 |
| $ | 108,040 |
|
Income taxes |
|
| (10,750 | ) |
| (10,688 | ) |
| (27,078 | ) |
| (22,388 | ) |
Interest expense (net) |
|
| (2,945 | ) |
| (2,141 | ) |
| (5,538 | ) |
| (3,884 | ) |
Depreciation and amortization |
|
| (11,798 | ) |
| (11,219 | ) |
| (23,520 | ) |
| (22,661 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 31,275 |
| $ | 26,909 |
| $ | 67,280 |
| $ | 59,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales, excluding foreign currency translation |
| $ | 449,823 |
| $ | 408,947 |
| $ | 891,975 |
| $ | 812,426 |
|
Foreign currency translation |
|
| 13,917 |
|
| (16,032 | ) |
| 18,184 |
|
| (16,115 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 463,740 |
| $ | 392,915 |
| $ | 910,159 |
| $ | 796,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings, excluding foreign currency translation |
| $ | 29,539 |
| $ | 27,554 |
| $ | 64,760 |
| $ | 59,559 |
|
Foreign currency translation |
|
| 1,736 |
|
| (645 | ) |
| 2,520 |
|
| (452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 31,275 |
| $ | 26,909 |
| $ | 67,280 |
| $ | 59,107 |
|
Although free cash flow, EBITDA, net sales excluding foreign currency translation, and net earnings excluding foreign currency translation are not measures of financial performance under GAAP, the company believes they are useful in understanding its financial results. Free cash flow is a commonly used measure of a company’s ability to generate cash in excess of its operating needs. EBITDA is a commonly used measure of operating earnings less non-cash expenses. Both net sales and net earnings excluding foreign currency translation provide a comparable measure for understanding the operating results of the company’s foreign entities excluding the impact of foreign exchange. A shortcoming of these financial measures is that they do not reflect the company’s actual results under GAAP. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.
# # #
