Exhibit 99.1
| |
FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
Tuesday, August 27, 2013 | Rich Sheffer (952) 887-3753 |
DONALDSON REPORTS RECORD FOURTH QUARTER EARNINGS
MINNEAPOLIS (August 27, 2013) — Donaldson Company, Inc. (NYSE: DCI) announced its financial results for its fiscal 2013 fourth quarter. Summarized financial results are as follows (dollars in millions, except per share data):
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
July 31 | | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | | Change | | 2013 | | 2012 | | Change | |
Net sales | | $ | 633 | | $ | 657 | | | (4 | )% | $ | 2,437 | | $ | 2,493 | | | (2 | )% |
Operating income | | | 100 | | | 99 | | | 1 | % | | 343 | | | 363 | | | (5 | )% |
Net earnings | | | 73 | | | 71 | | | 2 | % | | 247 | | | 264 | | | (6 | )% |
| | | | | | | | | | | | | | | | | | | |
Diluted EPS | | $ | 0.48 | | $ | 0.47 | | | 2 | % | $ | 1.64 | | $ | 1.73 | | | (5 | )% |
“While global economic conditions in many of our end markets remained challenging, we delivered record fourth quarter net income and earnings per share,” said Bill Cook, Donaldson’s CEO. “Our overall sales were down from the fourth quarter of last year primarily due to our Engine Products OEM businesses in the U.S. and Asia and our Industrial Products businesses. However, we also had a number of businesses and regions that saw year-over-year increases. Our Engine Aftermarket sales increased 3 percent from last year and have now grown sequentially for the second straight quarter. Regionally, we achieved strong local currency sales growth in Latin America, India, and our European Engine business in the quarter.”
“Despite our lower overall sales, we delivered higher operating income with a record operating margin of 15.8 percent. Over the last year, we have worked to align our manufacturing and operating expenses with current Customer demand while generating significant savings from our ongoingContinuous Improvement initiatives. During the quarter, we also incurred restructuring charges of $1.2 million as part of these alignment efforts. Due to our strong operating margin performance, we delivered record net income and EPS in the fourth quarter.”
“Looking forward, we believe that many of our end markets have now stabilized and will begin to grow moderately during the second half of our FY14. Overall, we are expecting our full year sales to increase percentage-wise in the low- to mid-single digits in FY14. We plan to maintain our operating focus on ourContinuous Improvement initiatives. We will continue to invest in our Strategic Business Systems project during FY14. Our overall growth outlook and operational performance is anticipated to deliver FY14 EPS of between $1.65 and $1.85 per share.”
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Financial Statement Discussion
The impact of foreign currency translation decreased sales by $3.5 million, or 0.5 percent, during the quarter and decreased sales by $32.2 million, or 1.3 percent, for the year. The impact of foreign currency translation decreased reported net earnings by $0.3 million, or 0.4 percent, during the quarter and decreased reported net earnings by $2.1 million, or 0.8 percent, for the year.
Gross margin was 36.1 percent for the quarter and 34.8 percent for the year, compared to prior year margins of 35.0 percent for both the quarter and the year. The improvement in the quarter is primarily attributable to a higher percentage of our sales coming from replacement filters and the benefits from ourContinuous Improvement initiatives. Restructuring expenses included in gross margin were $0.3 million in the quarter and $1.6 million for the year.
Operating expenses for the quarter were $128.3 million, down 1.5 percent from last year. As a percent of sales, operating expenses were 20.3 percent compared to last year’s 19.8 percent. For the year, operating expenses were $503.8 million, or 20.7 percent of sales, compared to $510.7 million, or 20.5 percent of sales, last year. Restructuring expenses included in operating expenses were $0.9 million and $2.4 million for the quarter and the year, respectively. Our ongoing cost containment actions and lower incentive compensation have helped to offset the restructuring expenses, higher pension expenses, and the incremental expenses related to our Strategic Business Systems project.
Our effective tax rate for the quarter was 28.2 percent, compared to a prior year rate of 30.7 percent. The decrease in the quarter was due to a change in the geographic mix of earnings compared to last year. For the year, the effective tax rate was 29.0 percent compared to a prior year rate of 28.7 percent.
As part of our ongoing share repurchase program we repurchased 1,166,000 shares, or 0.8 percent of our diluted shares outstanding, for $41.6 million during the quarter. For the year, we repurchased 2,987,000 shares, or 2.0 percent of our diluted shares outstanding, for $102.6 million.
FY14 Outlook
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| • | We project our Company’s sales to be between $2.45 and $2.55 billion, or an increase of 1 to 5 percent. Our forecast is based on the Euro at US$1.32 and 97 Yen to the US$. |
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| • | Our full-year operating margin forecast is 14.1 to 14.9 percent. Included in this forecast is approximately $30 million in expense increases for our Strategic Business Systems project and incentive compensation. |
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| • | Our FY14 tax rate is anticipated to be between 28 and 31 percent. |
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Donaldson Company, Inc.
August 27, 2013
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| • | We forecast our full year FY14 EPS to be between $1.65 and $1.85. |
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| • | Cash generated by operating activities is projected to be between $275 and $305 million. Our capital spending is estimated to be approximately $90 million. We anticipate repurchasing between 2 and 4 percent of our diluted outstanding shares in FY14. |
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Engine Products: We forecast FY14 sales to increase 1 to 7 percent, including the impact of foreign currency. |
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| • | Our On-Road OEM Customers are planning to increase their builds of heavy- and medium-duty trucks in FY14, with build rates turning positive in our first fiscal quarter. Demand from our Off-Road OEM Customers is anticipated to be mixed: build rates of agriculture equipment are forecasted to remain steady but the outlook is cautious, build rates of construction equipment are expected to slowly improve in North America but remain weak in Europe and China, and the build rates of mining equipment are expected to continue to remain at current low levels. |
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| • | We are anticipating improving growth for our Aftermarket Products. Current utilization rates for off-road equipment and on-road heavy truck fleets in the field have stabilized and inventory levels at dealers and distributors are now consistent with current end user utilization rates in most markets. We should also benefit from our continued expansion into emerging economies, the increasing number of systems installed in the field with our innovative proprietary filters, and our increasing sales of liquid filtration products. |
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| • | We forecast steady sales for our Aerospace and Defense Products compared to last year as the continued slowdown in U.S. military activity is expected to be offset by growth from our commercial aerospace sales. |
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Industrial Products: We forecast sales to be consistent with FY13, including the impact of foreign currency. |
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| • | Our Industrial Filtration Solutions Products’ sales are projected to increase 5 to 11 percent. We assume general manufacturing activity will continue to increase moderately in the Americas and has now stabilized in Europe and Asia with gradual improvement expected in both regions. |
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| • | We anticipate our Gas Turbine Products’ sales will decrease 18 to 24 percent from our record sales in FY13 due to the forecasted slowdown in large turbine power generation projects by our Customers in FY14. |
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| • | Special Applications Products’ sales are forecasted to increase 5 to 11 percent due to improved market demand for our membranes and venting products, partially offset by continued weakness in the disk drive filter market. |
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Donaldson Company, Inc.
August 27, 2013
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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 approximately 12,600 employees contribute to the Company’s success by supporting our Customers at our more than 140 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, without limitation, forecasts, plans, trends, and projections relating to our business and financial performance and global economic conditions, which involve uncertainties that could materially impact results. All statements other than statements of historical fact are forward-looking statements. These statements do not guarantee future performance.
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 global economic uncertainty, the reduced demand for hard disk drive products with the increased use of flash memory, 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 the various economic stimulus and financial reform measures, the implementation of our new information technology systems, failure or breach of information technology and trade secret security, potential global events resulting in market instability including financial bailouts and defaults of sovereign nations, military and terrorist activities, health outbreaks, natural disasters, and all of the other risk 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.
August 27, 2013
Page 5
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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
July 31 | | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Net sales | | $ | 632,594 | | $ | 656,833 | | $ | 2,436,948 | | $ | 2,493,248 | |
| | | | | | | | | | | | | |
Cost of sales | | | 404,238 | | | 427,050 | | | 1,589,821 | | | 1,619,485 | |
| | | | | | | | | | | | | |
Gross profit | | | 228,356 | | | 229,783 | | | 847,127 | | | 873,763 | |
| | | | | | | | | | | | | |
Operating expenses | | | 128,343 | | | 130,299 | | | 503,798 | | | 510,747 | |
| | | | | | | | | | | | | |
Operating income | | | 100,013 | | | 99,484 | | | 343,329 | | | 363,016 | |
| | | | | | | | | | | | | |
Other income, net | | | (3,800 | ) | | (5,503 | ) | | (15,762 | ) | | (19,253 | ) |
| | | | | | | | | | | | | |
Interest expense | | | 2,635 | | | 2,633 | | | 10,910 | | | 11,489 | |
| | | | | | | | | | | | | |
Earnings before income taxes | | | 101,178 | | | 102,354 | | | 348,181 | | | 370,780 | |
| | | | | | | | | | | | | |
Income taxes | | | 28,569 | | | 31,373 | | | 100,804 | | | 106,479 | |
| | | | | | | | | | | | | |
Net earnings | | $ | 72,609 | | $ | 70,981 | | $ | 247,377 | | $ | 264,301 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | 147,880,382 | | | 149,989,485 | | | 148,273,904 | | | 150,286,403 | |
| | | | | | | | | | | | | |
Diluted shares outstanding | | | 149,940,905 | | | 152,506,028 | | | 150,455,193 | | | 152,940,605 | |
| | | | | | | | | | | | | |
Net earnings per share | | $ | 0.49 | | $ | 0.47 | | $ | 1.67 | | $ | 1.76 | |
| | | | | | | | | | | | | |
Net earnings per share assuming dilution | | $ | 0.48 | | $ | 0.47 | | $ | 1.64 | | $ | 1.73 | |
| | | | | | | | | | | | | |
Dividends paid per share | | $ | 0.130 | | $ | 0.090 | | $ | 0.410 | | $ | 0.320 | |
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Donaldson Company, Inc.
August 27, 2013
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
| | | | | | | |
| | July 31
2013 | | July 31
2012 | |
ASSETS | | | | | | | |
| | | | | | | |
Cash, cash equivalents, and short-term investments | | $ | 323,888 | | $ | 318,151 | |
Accounts receivable, net | | | 430,766 | | | 438,796 | |
Inventories, net | | | 234,820 | | | 256,116 | |
Prepaids and other current assets | | | 66,188 | | | 72,599 | |
| | | | | | | |
Total current assets | | | 1,055,662 | | | 1,085,662 | |
| | | | | | | |
Other assets and deferred taxes | | | 268,614 | | | 259,511 | |
Property, plant, and equipment, net | | | 419,280 | | | 384,909 | |
| | | | | | | |
Total assets | | $ | 1,743,556 | | $ | 1,730,082 | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Trade accounts payable | | $ | 186,460 | | $ | 199,182 | |
Employee compensation and other liabilities | | | 182,121 | | | 201,848 | |
Short-term borrowings | | | 9,190 | | | 95,147 | |
Current maturity long-term debt | | | 98,664 | | | 2,346 | |
| | | | | | | |
Total current liabilities | | | 476,435 | | | 498,523 | |
| | | | | | | |
Long-term debt | | | 102,774 | | | 203,483 | |
Other long-term liabilities | | | 79,160 | | | 118,062 | |
| | | | | | | |
Total liabilities | | | 658,369 | | | 820,068 | |
| | | | | | | |
Equity | | | 1,085,187 | | | 910,014 | |
| | | | | | | |
Total liabilities and equity | | $ | 1,743,556 | | $ | 1,730,082 | |
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Donaldson Company, Inc.
August 27, 2013
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | | | | | |
| | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | |
OPERATING ACTIVITIES | | | | | | | |
| | | | | | | |
Net earnings | | $ | 247,377 | | $ | 264,301 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 64,290 | | | 61,165 | |
Changes in operating assets and liabilities | | | 2,490 | | | (45,609 | ) |
Tax benefit of equity plans | | | (11,191 | ) | | (10,316 | ) |
Stock compensation plan expense | | | 9,148 | | | 10,553 | |
Other, net | | | 3,809 | | | (20,382 | ) |
Net cash provided by operating activities | | | 315,923 | | | 259,712 | |
| | | | | | | |
INVESTING ACTIVITIES | | | | | | | |
| | | | | | | |
Net expenditures on property and equipment | | | (94,337 | ) | | (77,170 | ) |
Net change in short-term investments | | | (1,974 | ) | | (99,298 | ) |
Net cash used in investing activities | | | (96,311 | ) | | (176,468 | ) |
| | | | | | | |
FINANCING ACTIVITIES | | | | | | | |
| | | | | | | |
Purchase of treasury stock | | | (102,572 | ) | | (130,233 | ) |
Net change in debt and short-term borrowings | | | (88,310 | ) | | 50,510 | |
Dividends paid | | | (60,320 | ) | | (47,684 | ) |
Tax benefit of equity plans | | | 11,191 | | | 10,316 | |
Exercise of stock options | | | 16,043 | | | 13,691 | |
Net cash used in financing activities | | | (223,968 | ) | | (103,400 | ) |
| | | | | | | |
Effect of exchange rate changes on cash | | | 2,705 | | | (27,549 | ) |
| | | | | | | |
Decrease in cash and cash equivalents | | | (1,651 | ) | | (47,705 | ) |
| | | | | | | |
Cash and cash equivalents – beginning of year | | | 225,789 | | | 273,494 | |
| | | | | | | |
Cash and cash equivalents – end of period | | $ | 224,138 | | $ | 225,789 | |
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Donaldson Company, Inc.
August 27, 2013
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SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | |
| | Engine
Products | | Industrial
Products | | Corporate &
Unallocated | | Total
Company | |
3 Months Ended July 31, 2013: | | | | | | | | | | | | | |
Net sales | | $ | 396,374 | | $ | 236,220 | | | — | | $ | 632,594 | |
Earnings before income taxes | | | 68,763 | | | 36,399 | | | (3,984 | ) | | 101,178 | |
| | | | | | | | | | | | | |
3 Months Ended July 31, 2012: | | | | | | | | | | | | | |
Net sales | | $ | 398,540 | | $ | 258,293 | | | — | | $ | 656,833 | |
Earnings before income taxes | | | 57,509 | | | 45,561 | | | (716 | ) | | 102,354 | |
| | | | | | | | | | | | | |
12 Months Ended July 31, 2013: | | | | | | | | | | | | | |
Net sales | | $ | 1,504,188 | | $ | 932,760 | | | — | | $ | 2,436,948 | |
Earnings before income taxes | | | 220,892 | | | 139,108 | | | (11,819 | ) | | 348,181 | |
| | | | | | | | | | | | | |
12 Months Ended July 31, 2012: | | | | | | | | | | | | | |
Net sales | | $ | 1,570,140 | | $ | 923,108 | | | — | | $ | 2,493,248 | |
Earnings before income taxes | | | 227,941 | | | 149,249 | | | (6,410 | ) | | 370,780 | |
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NET SALES BY PRODUCT |
(Thousands of dollars) |
(Unaudited) |
| | | | | | | | | | | | | |
| | Three Months Ended
July 31 | | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Engine Products segment: | | | | | | | | | | | | | |
Off-Road Products | | $ | 90,778 | | $ | 95,420 | | $ | 358,834 | | $ | 376,870 | |
On-Road Products | | | 32,239 | | | 39,800 | | | 128,446 | | | 163,934 | |
Aftermarket Products | | | 241,709 | | | 235,041 | | | 900,419 | | | 907,306 | |
Retrofit Emissions Products | | | 2,744 | | | 2,028 | | | 12,298 | | | 15,354 | |
Aerospace and Defense Products | | | 28,904 | | | 26,251 | | | 104,191 | | | 106,676 | |
Total Engine Products segment | | $ | 396,374 | | $ | 398,540 | | $ | 1,504,188 | | $ | 1,570,140 | |
| | | | | | | | | | | | | |
Industrial Products segment: | | | | | | | | | | | | | |
Industrial Filtration Solutions Products | | $ | 143,276 | | $ | 151,931 | | $ | 529,751 | | $ | 553,453 | |
Gas Turbine Products | | | 50,627 | | | 57,041 | | | 232,922 | | | 180,669 | |
Special Applications Products | | | 42,317 | | | 49,321 | | | 170,087 | | | 188,986 | |
Total Industrial Products segment | | $ | 236,220 | | $ | 258,293 | | $ | 932,760 | | $ | 923,108 | |
| | | | | | | | | | | | | |
Total Company | | $ | 632,594 | | $ | 656,833 | | $ | 2,436,948 | | $ | 2,493,248 | |
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Donaldson Company, Inc.
August 27, 2013
Page 9
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended
July 31 | | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
| | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 98,534 | | $ | 77,311 | | $ | 315,923 | | $ | 259,712 | |
Net capital expenditures | | | (24,912 | ) | | (19,183 | ) | | (94,337 | ) | | (77,170 | ) |
Free cash flow | | $ | 73,622 | | $ | 58,128 | | $ | 221,586 | | $ | 182,542 | |
| | | | | | | | | | | | | |
Net earnings | | $ | 72,609 | | $ | 70,981 | | $ | 247,377 | | $ | 264,301 | |
Income taxes | | | 28,569 | | | 31,373 | | | 100,804 | | | 106,479 | |
Interest expense, net | | | 1,987 | | | 1,312 | | | 8,097 | | | 7,025 | |
Depreciation and amortization | | | 15,763 | | | 14,951 | | | 64,290 | | | 61,165 | |
EBITDA | | $ | 118,928 | | $ | 118,617 | | $ | 420,568 | | $ | 438,970 | |
| | | | | | | | | | | | | |
Prior year net sales | | $ | 656,833 | | $ | 625,450 | | $ | 2,493,248 | | $ | 2,294,029 | |
Change in net sales, excluding foreign currency translation | | | (20,710 | ) | | 67,664 | | | (24,144 | ) | | 237,931 | |
Foreign currency translation | | | (3,529 | ) | | (36,281 | ) | | (32,156 | ) | | (38,712 | ) |
Current year net sales | | $ | 632,594 | | $ | 656,833 | | $ | 2,436,948 | | $ | 2,493,248 | |
| | | | | | | | | | | | | |
Prior year net earnings | | $ | 70,981 | | $ | 65,767 | | $ | 264,301 | | $ | 225,291 | |
Change in net earnings, excluding foreign currency translation | | | 1,883 | | | 9,066 | | | (14,815 | ) | | 43,016 | |
Foreign currency translation | | | (255 | ) | | (3,852 | ) | | (2,109 | ) | | (4,006 | ) |
Current year net earnings | | $ | 72,609 | | $ | 70,981 | | $ | 247,377 | | $ | 264,301 | |
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Donaldson Company, Inc.
August 27, 2013
Page 10
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)
(Thousands of dollars, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended
July 31 | | Twelve Months Ended
July 31 | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Net earnings | | $ | 72,609 | | $ | 70,981 | | $ | 247,377 | | $ | 264,301 | |
Restructuring charges, net of tax | | | 856 | | | — | | | 2,954 | | | — | |
Net earnings, excluding special items | | $ | 73,465 | | $ | 70,981 | | $ | 250,331 | | $ | 264,301 | |
| | | | | | | | | | | | | |
Net earnings per share assuming dilution | | $ | 0.48 | | $ | 0.47 | | $ | 1.64 | | $ | 1.73 | |
Restructuring charges per share, net of tax | | | 0.01 | | | — | | | 0.02 | | | — | |
Net earnings per share assuming dilution, excluding special items | | $ | 0.49 | | $ | 0.47 | | $ | 1.66 | | $ | 1.73 | |
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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