Exhibit 99.1
FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
Tuesday, May 27, 2008 | Rich Sheffer (952) 887-3753 |
DONALDSON REPORTS RECORD THIRD QUARTER SALES AND EARNINGS
21 percent sales growth drives 27 percent operating income increase
MINNEAPOLIS (May 27, 2008) — Donaldson Company, Inc. (NYSE: DCI) announced third quarter diluted earnings per share (“EPS”) of $0.57, a 16 percent increase from $0.49 last year. Net income was $46.0 million, up from $40.1 million last year. Sales were $587.8 million, a 21 percent increase from $484.0 million in the third quarter of 2007.
For the nine-month period, EPS was $1.52, an increase of 17 percent from $1.30 last year. Net income increased 15 percent to $123.4 million versus $107.4 million last year. Sales were $1.625 billion, up 17 percent from $1.394 billion in fiscal 2007.
“We experienced very broad-based strength this quarter,” said Bill Cook, Chairman, President and CEO. “All of the product groups within our Industrial Products and most of those within our Engine Products posted double-digit sales growth this quarter, both as reported and in local currency. Geographically, sales increased by more than 15 percent in NAFTA and Asia, and by more than 25 percent in Europe. The strong sales growth helped lift our operating margin 40 basis points in the quarter, driving a 27 percent increase in operating income.”
“Looking at the balance of fiscal 2008, we expect our business conditions to remain good. We see sufficient strength across our Engine Products and Industrial Products’ businesses to maintain our sales forecast for both segments and anticipate achieving our first $2 billion revenue year. In addition, we remain confident that we will deliver our 19th consecutive year of record earnings.”
Financial Statement Discussion
The impact of foreign currency translation increased reported sales by $37.0 million, or 7.6 percent, in the quarter and $84.6 million, or 6.1 percent, year-to-date. The impact of foreign currency translation increased reported net earnings by $2.9 million in the quarter and $9.6 million year-to-date.
Gross margins of 32.0 percent for the quarter and 32.3 percent year-to-date compare to prior year margins of 31.0 percent and 31.2 percent for the same periods. As we stated last quarter, we will incur incremental expenses for the balance of this fiscal year related to the implementation of our new warehouse management system in our main U.S. distribution center. The incremental costs related to this for our third quarter were $3.6 million.
Operating expenses for the quarter were 21.2 percent of sales, up from 20.6 percent last year. We continue to invest in essential product development initiatives and in our global Customer support capabilities. Year-to-date operating expenses were 21.3 percent of sales, up from 20.7 percent last year.
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May 27, 2008
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The effective tax rates of 25.6 percent for the quarter and 27.4 percent year-to-date compare to 16.2 percent and 24.5 percent for the same periods last year. The current quarter includes a net tax benefit of $4.0 million due primarily to the expiration of the statute of limitations on matters previously reserved. Last year’s third quarter rate included $7.8 million of favorable adjustments related to the resolution of open foreign and state tax positions, the expiration of the statute of limitations on certain matters previously reserved, and a dividend from a foreign subsidiary.
As part of our ongoing share repurchase program, we repurchased 500,018 shares during the quarter for $20.7 million. Year-to-date, we have repurchased 1,703,718 shares for $69.3 million.
Fiscal 2008 Outlook
Engine Products: We now expect 11 to 13 percent full year sales growth.
| • | We expect our NAFTA Transportation Products’ sales to begin growing again in our fourth quarter. |
| • | We expect the NAFTA residential construction market to remain weak. However, high commodity prices and global infrastructure projects are expected to keep global demand strong for our Customers’ new mining, heavy construction, and agriculture equipment. |
| • | Our Aftermarket sales are expected to continue growing due to our ongoing expansion into new markets and strong equipment utilization internationally. We expect to continue benefiting from the increasing amount of equipment in the field with our PowerCore™ technology as well as our other new proprietary filtration systems. |
Industrial Products: We now expect 17 to 19 percent full year sales growth.
| • | Full year Industrial Filtration Solutions’ sales are projected to grow 15 to 20 percent due to continued strong global manufacturing investment and production utilization conditions. |
| • | We now expect our Gas Turbine Products’ sales to increase 25 to 30 percent for the full year. Continued strength is expected from both the international power generation and the oil and gas markets. |
| • | Special Applications Products’ sales are expected to grow 15 to 20 percent for the full year. |
Other:
| • | In our guidance, we assume exchange rates will remain at current levels. |
| • | We expect our operating margin will be a minimum of 11 percent for the full year, including the impact from our new warehouse management system implementation. |
| • | Our operating income is projected to be up 17 to 19 percent over the prior year. |
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| • | Our full year tax rate is now expected to be between 28 and 31 percent. |
| • | For the third time this year, we are increasing our full year FY08 EPS forecast. We now expect our EPS to be between $2.08 and $2.13 per share. |
| • | Finally, this year we expect to achieve our 19th consecutive EPS and earnings records. |
About Donaldson Company
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 almost 13,000 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 and Russell 1000 indices, and our shares trade on the NYSE under the symbol DCI. Additional information is available at www.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, the implementation of our new warehouse management system in our U.S. distribution center, 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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May 27, 2008
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CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars, except share and per share amounts)
(Unaudited)
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2008 | | 2007 | | 2008 | | 2007 | |
Net sales | | $ | 587,760 | | $ | 483,988 | | $ | 1,625,099 | | $ | 1,394,147 | |
| | | | | | | | | | | | | |
Cost of sales | | | 399,494 | | | 334,166 | | | 1,100,784 | | | 959,243 | |
| | | | | | | | | | | | | |
Gross margin | | | 188,266 | | | 149,822 | | | 524,315 | | | 434,904 | |
| | | | | | | | | | | | | |
Operating expenses | | | 124,744 | | | 99,649 | | | 346,379 | | | 288,163 | |
| | | | | | | | | | | | | |
Operating income | | | 63,522 | | | 50,173 | | | 177,936 | | | 146,741 | |
| | | | | | | | | | | | | |
Other income, net | | | (2,567 | ) | | (1,889 | ) | | (4,589 | ) | | (5,796 | ) |
| | | | | | | | | | | | | |
Interest expense | | | 4,239 | | | 4,181 | | | 12,555 | | | 10,298 | |
| | | | | | | | | | | | | |
Earnings before income taxes | | | 61,850 | | | 47,881 | | | 169,970 | | | 142,239 | |
| | | | | | | | | | | | | |
Income taxes | | | 15,863 | | | 7,734 | | | 46,590 | | | 34,812 | |
| | | | | | | | | | | | | |
Net earnings | | $ | 45,987 | | $ | 40,147 | | $ | 123,380 | | $ | 107,427 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | 78,633,945 | | | 79,922,357 | | | 79,406,931 | | | 80,672,942 | |
| | | | | | | | | | | | | |
Diluted shares outstanding | | | 80,525,835 | | | 81,826,193 | | | 81,398,771 | | | 82,671,646 | |
| | | | | | | | | | | | | |
Net earnings per share | | $ | .58 | | $ | .50 | | $ | 1.55 | | $ | 1.33 | |
| | | | | | | | | | | | | |
Net earnings per share assuming dilution | | $ | .57 | | $ | .49 | | $ | 1.52 | | $ | 1.30 | |
| | | | | | | | | | | | | |
Dividends paid per share | | $ | .11 | | $ | .09 | | $ | .31 | | $ | .27 | |
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
| | April 30
2008 | | July 31
2007 | |
ASSETS | | | | | | | |
| | | | | | | |
Cash and cash equivalents | | $ | 53,277 | | $ | 55,237 | |
Accounts receivable – net | | | 419,849 | | | 357,341 | |
Inventories – net | | | 260,462 | | | 201,221 | |
Prepaids and other current assets | | | 74,544 | | | 59,845 | |
| | | | | | | |
Total current assets | | | 808,132 | | | 673,644 | |
| | | | | | | |
Other assets | | | 299,649 | | | 280,940 | |
Property, plant and equipment – net | | | 405,764 | | | 364,433 | |
| | | | | | | |
Total assets | | $ | 1,513,545 | | $ | 1,319,017 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Trade accounts payable | | $ | 196,874 | | $ | 173,862 | |
Employee compensation and other liabilities | | | 159,386 | | | 128,301 | |
Notes payable | | | 108,737 | | | 123,114 | |
Current maturity long-term debt | | | 32,899 | | | 33,667 | |
| | | | | | | |
Total current liabilities | | | 497,896 | | | 458,944 | |
| | | | | | | |
Long-term debt | | | 177,362 | | | 129,004 | |
Other long-term liabilities | | | 108,595 | | | 106,371 | |
| | | | | | | |
Total liabilities | | | 783,853 | | | 694,319 | |
| | | | | | | |
Equity | | | 729,692 | | | 624,698 | |
| | | | | | | |
Total liabilities and equity | | $ | 1,513,545 | | $ | 1,319,017 | |
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | Nine Months Ended
April 30 | |
| | 2008 | | 2007 | |
OPERATING ACTIVITIES | | | | | | | |
| | | | | | | |
Net earnings | | $ | 123,380 | | $ | 107,427 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 41,850 | | | 35,498 | |
Changes in operating assets and liabilities | | | (53,541 | ) | | (66,518 | ) |
Tax benefit of equity plans | | | (6,588 | ) | | (5,041 | ) |
Stock option expense | | | 3,762 | | | 3,127 | |
Other, net | | | (5,050 | ) | | (27,665 | ) |
Net cash provided by operating activities | | | 103,813 | | | 46,828 | |
| | | | | | | |
INVESTING ACTIVITIES | | | | | | | |
| | | | | | | |
Net expenditures on property and equipment | | | (52,109 | ) | | (52,933 | ) |
Acquisitions, investments and divestitures, net | | | (2,475 | ) | | (40,299 | ) |
Net cash used in investing activities | | | (54,584 | ) | | (93,232 | ) |
| | | | | | | |
FINANCING ACTIVITIES | | | | | | | |
| | | | | | | |
Purchase of treasury stock | | | (69,284 | ) | | (61,890 | ) |
Net change in debt | | | 26,548 | | | 121,025 | |
Dividends paid | | | (24,428 | ) | | (21,659 | ) |
Tax benefit of equity plans | | | 6,588 | | | 5,041 | |
Other, net | | | 5,672 | | | 5,045 | |
Net cash provided by/(used in) financing activities | | | (54,904 | ) | | 47,562 | |
| | | | | | | |
Effect of exchange rate changes on cash | | | 3,715 | | | 1,584 | |
| | | | | | | |
Increase (decrease) in cash and cash equivalents | | | (1,960 | ) | | 2,742 | |
| | | | | | | |
Cash and cash equivalents – beginning of year | | | 55,237 | | | 45,467 | |
| | | | | | | |
Cash and cash equivalents – end of period | | $ | 53,277 | | $ | 48,209 | |
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SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
| | Engine
Products | | Industrial
Products | | Corporate &
Unallocated | | Total
Company | |
3 Months Ended April 30, 2008: | | | | | | | | | | | | |
Net sales | | $ | 324,992 | | $ | 262,768 | | — | | $ | 587,760 | |
Earnings before income taxes | | | 43,456 | | | 25,997 | | (7,603 | ) | | 61,850 | |
| | | | | | | | | | | | |
3 Months Ended April 30, 2007: | | | | | | | | | | | | |
Net sales | | $ | 276,660 | | $ | 207,328 | | — | | $ | 483,988 | |
Earnings before income taxes | | | 35,581 | | | 17,801 | | (5,501 | ) | | 47,881 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
9 Months Ended April 30, 2008: | | | | | | | | | | | | |
Net sales | | $ | 902,488 | | $ | 722,611 | | — | | $ | 1,625,099 | |
Earnings before income taxes | | | 115,279 | | | 70,429 | | (15,738 | ) | | 169,970 | |
| | | | | | | | | | | | |
9 Months Ended April 30, 2007: | | | | | | | | | | | | |
Net sales | | $ | 793,924 | | $ | 600,223 | | — | | $ | 1,394,147 | |
Earnings before income taxes | | | 102,125 | | | 51,135 | | (11,021 | ) | | 142,239 | |
NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2008 | | 2007 | | 2008 | | 2007 | |
Engine Products segment: | | | | | | | | | | | | | |
Off-road Products | | $ | 120,932 | | $ | 92,750 | | $ | 332,398 | | $ | 253,113 | |
Transportation Products | | | 33,188 | | | 38,395 | | | 91,943 | | | 132,316 | |
Aftermarket Products | | | 170,872 | | | 145,515 | | | 478,147 | | | 408,495 | |
Total Engine Products segment | | $ | 324,992 | | $ | 276,660 | | $ | 902,488 | | $ | 793,924 | |
| | | | | | | | | | | | | |
Industrial Products segment: | | | | | | | | | | | | | |
Industrial Filtration Solutions Products | | $ | 155,208 | | $ | 125,756 | | $ | 430,304 | | $ | 371,328 | |
Gas Turbine Products | | | 58,858 | | | 41,201 | | | 149,046 | | | 110,713 | |
Special Applications Products | | | 48,702 | | | 40,371 | | | 143,261 | | | 118,182 | |
Total Industrial Products segment | | $ | 262,768 | | $ | 207,328 | | $ | 722,611 | | $ | 600,223 | |
| | | | | | | | | | | | | |
Total Company | | $ | 587,760 | | $ | 483,988 | | $ | 1,625,099 | | $ | 1,394,147 | |
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars)
(Unaudited)
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | | | | |
Free cash flow | | $ | 33,772 | | $ | 10,303 | | $ | 51,704 | | $ | (6,105 | ) |
Net capital expenditures | | | 23,764 | | | 16,793 | | | 52,109 | | | 52,933 | |
Net cash provided by operating activities | | $ | 57,536 | | $ | 27,096 | | $ | 103,813 | | $ | 46,828 | |
| | | | | | | | | | | | | |
EBITDA | | $ | 79,796 | | $ | 63,735 | | $ | 223,556 | | $ | 187,151 | |
Income taxes | | | (15,863 | ) | | (7,734 | ) | | (46,590 | ) | | (34,812 | ) |
Interest expense (net) | | | (4,063 | ) | | (3,876 | ) | | (11,736 | ) | | (9,414 | ) |
Depreciation and amortization | | | (13,883 | ) | | (11,978 | ) | | (41,850 | ) | | (35,498 | ) |
| | | | | | | | | | | | | |
Net earnings | | $ | 45,987 | | $ | 40,147 | | $ | 123,380 | | $ | 107,427 | |
| | | | | | | | | | | | | |
Net sales, excluding foreign currency translation | | $ | 550,798 | | $ | 468,417 | | $ | 1,540,451 | | $ | 1,360,392 | |
Foreign currency translation | | | 36,962 | | | 15,571 | | | 84,648 | | | 33,755 | |
| | | | | | | | | | | | | |
Net sales | | $ | 587,760 | | $ | 483,988 | | $ | 1,625,099 | | $ | 1,394,147 | |
| | | | | | | | | | | | | |
Net earnings, excluding foreign currency translation | | $ | 43,136 | | $ | 38,772 | | $ | 113,761 | | $ | 103,532 | |
Foreign currency translation | | | 2,851 | | | 1,375 | | | 9,619 | | | 3,895 | |
| | | | | | | | | | | | | |
Net earnings | | $ | 45,987 | | $ | 40,147 | | $ | 123,380 | | $ | 107,427 | |
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.
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