Exhibit 99.1
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FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
Friday, May 20, 2011 | Rich Sheffer (952) 887-3753 |
DONALDSON REPORTS RECORD THIRD QUARTER RESULTS
19 percent sales increase and strong operating performance deliver record EPS of $0.79
MINNEAPOLIS (May 20, 2011) — Donaldson Company, Inc. (NYSE: DCI) announced its financial results for its fiscal 2011 third quarter. Summarized financial results are as follows (dollars in millions, except per share data):
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2011 | | 2010 | | Change | | 2011 | | 2010 | | Change | |
| | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 595 | | $ | 498 | | | 19% | | $ | 1,669 | | $ | 1,362 | | | 23% | |
Operating income | | | 83 | | | 72 | | | 16% | | | 225 | | | 164 | | | 38% | |
Net earnings | | | 62 | | | 49 | | | 25% | | | 160 | | | 115 | | | 39% | |
Diluted EPS | | $ | 0.79 | | $ | 0.62 | | | 27% | | $ | 2.03 | | $ | 1.45 | | | 40% | |
“The continued strength in many of our early- and mid-cycle businesses, combined with solid execution across our Company, helped us set new third quarter sales and EPS records,” said Bill Cook, Chairman, President and CEO. “In the quarter, sales in our Engine and Industrial Products’ segments increased 25 percent and 11 percent over the prior year, respectively. Business levels continued to expand in many of our regions with notable performances in the Americas, where local currency sales grew 26 percent, and in Europe, which grew 15 percent. Our overall sales in Asia were flat, but it was really a combination of two different stories. Our Gas Turbine and Special Applications Products were down from the prior year; however, they were offset by our Engine and Industrial Filtration Solutions Products, which grew 18 percent and 20 percent, respectively, driven primarily by their rapid growth in China.
We achieved an operating margin of 14.0 percent – our highest so far this fiscal year due to the combination of operating leverage in our plants and distribution centers, our focus on effective execution in support of our Customers, and the benefits of our manyContinuous Improvement initiatives across our Company.”
“With projected sales of over $600 million in our 4th quarter, we forecast continued growth. We are also very pleased to now forecast that our full year EPS should be a new record of between $2.76 and $2.86, which is up between 30 and 35 percent from both last year and our pre-recession record.”
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Donaldson Company, Inc.
May 20, 2011
Page 2
Financial Statement Discussion
The impact of foreign currency translation increased sales by $16.7 million, or 3.4 percent, during the third quarter and $9.5 million, or 0.7 percent, year-to-date, compared to the same periods last year. The impact of foreign currency translation increased reported net earnings by $1.8 million, or 3.7 percent, during the third quarter and a similar amount year-to-date, compared to the prior year.
Gross margin was 35.2 percent for the quarter and year-to-date, compared to prior year margins of 35.6 percent and 34.6 percent, respectively. The decrease in this quarter’s gross margin compared to last year was the result of increases in purchased raw material costs and a change in our sales mix, partially offset by better fixed cost absorption and ourContinuous Improvement initiatives. In addition, last year’s third quarter gross margin included restructuring and asset impairment charges of $3.7 million.
Operating expenses for the quarter were $125.8 million, up 19.5 percent from $105.3 million last year primarily due to the increased sales volume. As a percent of sales, operating expenses were consistent with last year’s 21.2 percent for the third quarter. Operating expenses year-to-date were $361.5 million, or 21.7 percent of sales, compared to $308.1 million, or 22.6 percent of sales, last year.
The effective tax rate for the quarter was 24.5 percent, compared to a prior year rate of 29.4 percent. The current quarter included $3.5 million of tax benefits primarily from the expirations of some statutes of limitation and the favorable conclusion of two international tax audits. Year-to-date the effective tax rate was 28.1 percent compared to a prior year rate of 27.0 percent.
As part of our ongoing share repurchase program we repurchased 650,000 shares for $36.6 million during the quarter. Year-to-date we have repurchased 800,000 shares, or 1.0 percent of our outstanding shares, for $43.1 million.
FY11 Outlook
We expect to achieve both full year sales and EPS records in FY11.
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| • | We are planning our FY11 sales to be nearly $2.3 billion, or up about 21 to 23 percent from the prior year. Our current forecast is based on the Euro at US$1.44 and 81 Yen to the US$. |
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| • | Our full year operating margin is forecasted to be 13.4 to 13.8 percent. |
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| • | Our full year FY11 tax rate is anticipated to be between 27 and 29 percent. |
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Donaldson Company, Inc.
May 20, 2011
Page 3
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| • | Our full year FY11 EPS is expected to be between $2.76 and $2.86. |
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| • | Cash generated by operating activities is projected to be between $210 and $230 million in FY11. Capital spending is estimated to be approximately $70 million. |
Engine Products: We expect full year sales to increase 26 to 29 percent, including the impact of foreign currency translation.
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| • | We anticipate sales to our agricultural, mining, and construction equipment OEM Customers to remain strong globally. We will also continue to benefit from increased market share on our Customers’ new Tier IV equipment platforms. |
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| • | In our On-Road Products’ business, we believe that build rates for heavy- and medium-duty trucks at our OEM Customers will continue accelerating consistent with current industry forecasts. |
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| • | Sales of our Aftermarket Products are expected to remain strong based on current utilization rates for both off-road equipment and on-road heavy trucks. We should also benefit as our distribution networks continue to expand in the emerging economies and from the increasing number of systems installed in the field with our proprietary filtration systems. |
Industrial Products: We forecast full year FY11 sales to increase 11 to 14 percent, including the impact of foreign currency translation.
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| • | Our Industrial Filtration Solutions’ sales are projected to increase 16 to 19 percent as the demand for new filtration equipment and replacement filters both continue to improve as general industrial capital activity and spending increase globally. |
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| • | We anticipate our Gas Turbine Products’ sales to be up 2 percent due to strength in the oil and gas market segment. |
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| • | Special Applications Products’ sales are forecast to increase 7 percent due to growing sales of our membranes products, which are partially offset by slower disk drive filter sales. |
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Donaldson Company, Inc.
May 20, 2011
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About Donaldson Company
Donaldson is a leading worldwide provider of filtration systems 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 filtration solutions through innovative research and development, application expertise, and global presence. Our 12,800 employees contribute to the Company’s success by supporting our Customers at our 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 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 and global economic conditions, 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: world economic factors and the ongoing economic uncertainty, the potential for some Customers to increase their reliance on their own filtration capabilities, currency fluctuations, commodity prices, political factors, the Company’s international operations, highly competitive markets, governmental laws and regulations including the impact of various economic stimulus and financial reform measures, the implementation of our new information technology systems, potential global events resulting in market instability including financial bailouts of sovereign nations, political changes, military and terrorist activities, health outbreaks, 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.
May 20, 2011
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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 | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Net sales | | $ | 594,565 | | $ | 497,619 | | $ | 1,668,579 | | $ | 1,361,821 | |
| | | | | | | | | | | | | |
Cost of sales | | | 385,407 | | | 320,248 | | | 1,081,788 | | | 890,103 | |
| | | | | | | | | | | | | |
Gross margin | | | 209,158 | | | 177,371 | | | 586,791 | | | 471,718 | |
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Operating expenses | | | 125,826 | | | 105,288 | | | 361,515 | | | 308,140 | |
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Operating income | | | 83,332 | | | 72,083 | | | 225,276 | | | 163,578 | |
| | | | | | | | | | | | | |
Other income, net | | | (1,381 | ) | | (942 | ) | | (5,990 | ) | | (2,743 | ) |
| | | | | | | | | | | | | |
Interest expense | | | 2,897 | | | 2,956 | | | 9,486 | | | 8,701 | |
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Earnings before income taxes | | | 81,816 | | | 70,069 | | | 221,780 | | | 157,620 | |
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Income taxes | | | 20,005 | | | 20,611 | | | 62,256 | | | 42,627 | |
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Net earnings | | $ | 61,811 | | $ | 49,458 | | $ | 159,524 | | $ | 114,993 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | 77,325,611 | | | 77,872,665 | | | 77,358,459 | | | 78,002,070 | |
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Diluted shares outstanding | | | 78,704,047 | | | 79,222,705 | | | 78,762,314 | | | 79,333,246 | |
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Net earnings per share | | $ | 0.80 | | $ | 0.64 | | $ | 2.06 | | $ | 1.47 | |
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Net earnings per share assuming dilution | | $ | 0.79 | | $ | 0.62 | | $ | 2.03 | | $ | 1.45 | |
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Dividends paid per share | | $ | 0.130 | | $ | 0.120 | | $ | 0.385 | | $ | 0.350 | |
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Donaldson Company, Inc.
May 20, 2011
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
| | | | | | | |
| | April 30
2011 | | July 31
2010 | |
ASSETS | | | | | | | |
| | | | | | | |
Cash, cash equivalents and short-term investments | | $ | 335,321 | | $ | 232,000 | |
Accounts receivable – net | | | 421,751 | | | 358,917 | |
Inventories – net | | | 257,886 | | | 203,631 | |
Prepaids and other current assets | | | 67,338 | | | 65,667 | |
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Total current assets | | | 1,082,296 | | | 860,215 | |
| | | | | | | |
Other assets and deferred taxes | | | 269,139 | | | 273,399 | |
Property, plant and equipment – net | | | 390,372 | | | 365,892 | |
| | | | | | | |
Total assets | | $ | 1,741,807 | | $ | 1,499,506 | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Trade accounts payable | | $ | 201,316 | | $ | 165,907 | |
Employee compensation and other liabilities | | | 189,289 | | | 167,813 | |
Notes payable | | | 56,698 | | | 50,000 | |
Current maturity long-term debt | | | 46,845 | | | 5,536 | |
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Total current liabilities | | | 494,148 | | | 389,256 | |
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Long-term debt | | | 204,689 | | | 256,192 | |
Other long-term liabilities | | | 87,753 | | | 107,425 | |
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Total liabilities | | | 786,590 | | | 752,873 | |
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Equity | | | 955,217 | | | 746,633 | |
| | | | | | | |
Total liabilities and equity | | $ | 1,741,807 | | $ | 1,499,506 | |
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Donaldson Company, Inc.
May 20, 2011
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | | | | | |
| | Nine Months Ended
April 30 | |
| | 2011 | | 2010 | |
OPERATING ACTIVITIES | | | | | | | |
| | | | | | | |
Net earnings | | $ | 159,524 | | $ | 114,993 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 45,276 | | | 45,158 | |
Changes in operating assets and liabilities | | | (23,958 | ) | | (6,848 | ) |
Tax benefit of equity plans | | | (8,272 | ) | | (3,815 | ) |
Stock compensation plan expense | | | 7,560 | | | 7,110 | |
Other, net | | | (11,587 | ) | | (7,831 | ) |
Net cash provided by operating activities | | | 168,543 | | | 148,767 | |
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INVESTING ACTIVITIES | | | | | | | |
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Net expenditures on property and equipment | | | (42,400 | ) | | (27,230 | ) |
Purchases of short-term investments | | | (67,985 | ) | | — | |
Acquisitions and divestitures, net | | | 3,493 | | | (250 | ) |
Net cash used in investing activities | | | (106,892 | ) | | (27,480 | ) |
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FINANCING ACTIVITIES | | | | | | | |
| | | | | | | |
Purchase of treasury stock | | | (43,101 | ) | | (23,783 | ) |
Net change in debt | | | (1,516 | ) | | (15,410 | ) |
Dividends paid | | | (29,547 | ) | | (27,040 | ) |
Tax benefit of equity plans | | | 8,272 | | | 3,815 | |
Exercise of stock options | | | 13,535 | | | 7,332 | |
Net cash used in financing activities | | | (52,357 | ) | | (55,086 | ) |
| | | | | | | |
Effect of exchange rate changes on cash | | | 22,199 | | | (1,527 | ) |
| | | | | | | |
Increase in cash and cash equivalents | | | 31,493 | | | 64,674 | |
| | | | | | | |
Cash and cash equivalents – beginning of year | | | 232,000 | | | 143,687 | |
| | | | | | | |
Cash and cash equivalents – end of period | | $ | 263,493 | | $ | 208,361 | |
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Donaldson Company, Inc.
May 20, 2011
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SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
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| | Engine
Products | | Industrial
Products | | Corporate &
Unallocated | | Total
Company | |
3 Months Ended April 30, 2011: | | | | | | | | | | | | | |
Net sales | | $ | 377,609 | | $ | 216,956 | | | — | | $ | 594,565 | |
Earnings before income taxes | | | 56,469 | | | 33,074 | | | (7,727 | ) | | 81,816 | |
| | | | | | | | | | | | | |
3 Months Ended April 30, 2010: | | | | | | | | | | | | | |
Net sales | | $ | 301,312 | | $ | 196,307 | | | — | | $ | 497,619 | |
Earnings before income taxes | | | 48,535 | | | 25,831 | | | (4,297 | ) | | 70,069 | |
| | | | | | | | | | | | | |
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9 Months Ended April 30, 2011: | | | | | | | | | | | | | |
Net sales | | $ | 1,042,500 | | $ | 626,079 | | | — | | $ | 1,668,579 | |
Earnings before income taxes | | | 149,123 | | | 92,236 | | | (19,579 | ) | | 221,780 | |
| | | | | | | | | | | | | |
9 Months Ended April 30, 2010: | | | | | | | | | | | | | |
Net sales | | $ | 809,061 | | $ | 552,760 | | | — | | $ | 1,361,821 | |
Earnings before income taxes | | | 107,833 | | | 61,318 | | | (11,531 | ) | | 157,620 | |
NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Engine Products segment: | | | | | | | | | | | | | |
Off-Road Products | | $ | 90,174 | | $ | 64,223 | | $ | 236,672 | | $ | 157,233 | |
Aerospace and Defense Products | | | 27,194 | | | 27,118 | | | 77,772 | | | 84,807 | |
On-Road Products | | | 30,924 | | | 20,838 | | | 88,726 | | | 57,728 | |
Aftermarket Products | | | 223,284 | | | 183,122 | | | 625,042 | | | 494,915 | |
Retrofit Emissions Products | | | 6,033 | | | 6,011 | | | 14,288 | | | 14,378 | |
Total Engine Products segment | | $ | 377,609 | | $ | 301,312 | | $ | 1,042,500 | | $ | 809,061 | |
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Industrial Products segment: | | | | | | | | | | | | | |
Industrial Filtration Solutions Products | | $ | 126,226 | | $ | 106,289 | | $ | 369,009 | | $ | 310,359 | |
Gas Turbine Products | | | 44,231 | | | 43,489 | | | 114,607 | | | 108,673 | |
Special Applications Products | | | 46,499 | | | 46,529 | | | 142,463 | | | 133,728 | |
Total Industrial Products segment | | $ | 216,956 | | $ | 196,307 | | $ | 626,079 | | $ | 552,760 | |
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Total Company | | $ | 594,565 | | $ | 497,619 | | $ | 1,668,579 | | $ | 1,361,821 | |
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Donaldson Company, Inc.
May 20, 2011
Page 9
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
| | | | | | | | | | | | | |
Free cash flow | | $ | 57,134 | | $ | 54,387 | | $ | 126,143 | | $ | 121,537 | |
Net capital expenditures | | | 18,349 | | | 9,109 | | | 42,400 | | | 27,230 | |
Net cash provided by operating activities | | $ | 75,483 | | $ | 63,496 | | $ | 168,543 | | $ | 148,767 | |
| | | | | | | | | | | | | |
EBITDA | | $ | 98,667 | | $ | 87,327 | | $ | 274,586 | | $ | 210,585 | |
Income taxes | | | (20,005 | ) | | (20,611 | ) | | (62,256 | ) | | (42,627 | ) |
Interest expense (net) | | | (2,053 | ) | | (2,649 | ) | | (7,530 | ) | | (7,807 | ) |
Depreciation and amortization | | | (14,798 | ) | | (14,609 | ) | | (45,276 | ) | | (45,158 | ) |
| | | | | | | | | | | | | |
Net earnings | | $ | 61,811 | | $ | 49,458 | | $ | 159,524 | | $ | 114,993 | |
| | | | | | | | | | | | | |
Net sales, excluding foreign currency translation | | $ | 577,858 | | $ | 476,957 | | $ | 1,659,088 | | $ | 1,310,392 | |
Foreign currency translation | | | 16,707 | | | 20,662 | | | 9,491 | | | 51,429 | |
| | | | | | | | | | | | | |
Net sales | | $ | 594,565 | | $ | 497,619 | | $ | 1,668,579 | | $ | 1,361,821 | |
| | | | | | | | | | | | | |
Net earnings, excluding foreign currency translation | | $ | 59,991 | | $ | 47,199 | | $ | 157,423 | | $ | 111,193 | |
Foreign currency translation | | | 1,820 | | | 2,259 | | | 2,101 | | | 3,800 | |
| | | | | | | | | | | | | |
Net earnings | | $ | 61,811 | | $ | 49,458 | | $ | 159,524 | | $ | 114,993 | |
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Donaldson Company, Inc.
May 20, 2011
Page 10
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)
(Thousands of dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended
April 30 | | Nine Months Ended
April 30 | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
Net earnings, excluding special items | | $ | 61,811 | | $ | 52,127 | | $ | 160,090 | | $ | 122,117 | |
Restructuring and asset impairment charges, net of tax | | | — | | | (2,669 | ) | | (566 | ) | | (7,124 | ) |
| | | | | | | | | | | | | |
Net earnings | | $ | 61,811 | | $ | 49,458 | | $ | 159,524 | | $ | 114,993 | |
| | | | | | | | | | | | | |
Net earnings per share assuming dilution, excluding special items | | $ | 0.79 | | $ | 0.65 | | $ | 2.04 | | $ | 1.54 | |
Restructuring and asset impairment charges per share, net of tax | | | — | | | (0.03 | ) | | (0.01 | ) | | (0.09 | ) |
| | | | | | | | | | | | | |
Net earnings per share assuming dilution | | $ | 0.79 | | $ | 0.62 | | $ | 2.03 | | $ | 1.45 | |
Although free cash flow, EBITDA, net sales excluding foreign currency translation, net earnings excluding foreign currency translation, net earnings excluding restructuring charges and net earnings per share assuming dilution excluding restructuring charges 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. Both net earnings excluding restructuring charges and earnings per share excluding restructuring charges provide a comparable measure for understanding the results of the Company as compared to prior periods. 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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