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DC

DONALDSON Co INC (DCI)·Q1 2025 Earnings Summary

Executive Summary

  • Record Q1 FY25: Sales $900.1M (+6.4% YoY), GAAP EPS $0.81, adjusted EPS $0.83; margin structure held with adjusted operating margin 14.9% vs 14.7% LY .
  • Reaffirmed FY25 outlook: adjusted EPS $3.56–$3.72, sales +2%–6%, adjusted operating margin 15.3%–15.9%; capex $85–$105M; FCF conversion 85%–95% .
  • Mix tailwinds: Aftermarket +10.7% on broad share gains; Aerospace & Defense +26.8%; IFS modest +0.8% on power gen timing; On‑Road/Off‑Road down on OEM production softness .
  • Cash conversion soft at 48.4% on working capital/inventory positioning for service levels; company repurchased 0.8% of shares ($74.9M) and paid $32.4M dividends in Q1 .

What Went Well and What Went Wrong

What Went Well

  • Aftermarket outperformance and share gains: “The big story is share gains… pretty broad as evidenced by almost double-digit growth across all regions” (Tod Carpenter). Aftermarket +10.7% YoY to $451.2M .
  • Aerospace & Defense strength: A&D sales +26.8% on robust end markets, aiding Industrial segment resilience .
  • Margin discipline: Adjusted operating margin 14.9% (+20 bps YoY) despite restructuring costs; adjusted gross margin flat YoY at 35.6% .

What Went Wrong

  • OEM weakness: On‑Road (-15.0%) and Off‑Road (-5.9%) declined on lower global equipment production in agriculture/transportation .
  • Life Sciences profitability: Pretax margin -7.6% (vs -7.0% LY), with targeted restructuring; management still guiding segment to ~breakeven FY25 .
  • Cash conversion: 48.4% in Q1 driven by working capital/inventory to improve on-time delivery; management expects normalization to 85%–95% for FY25 .

Financial Results

Headline Metrics (oldest → newest)

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Revenue ($M)$927.9 $935.4 $900.1
GAAP Diluted EPS ($)$0.92 $0.90 $0.81
Adjusted EPS ($)$0.92 $0.94 $0.83
Gross Margin (%)35.6% 35.8% 35.5%
Adjusted Gross Margin (%)35.6% 36.2% 35.6%
Operating Margin (%)15.5% 15.6% 14.5%
Adjusted Operating Margin (%)15.5% 16.3% 14.9%
EBITDA Margin (%)18.7% 18.1% 17.9%

Notes: All figures GAAP unless “Adjusted” specified.

Segment Sales and Profitability (oldest → newest)

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Mobile Solutions Sales ($M)$585.2 $575.3 $572.4
Industrial Solutions Sales ($M)$269.1 $287.8 $257.6
Life Sciences Sales ($M)$73.6 $72.3 $70.1
Mobile Pretax Margin (%)18.4% 18.3% 18.3%
Industrial Pretax Margin (%)18.7% 20.1% 15.9%
Life Sciences Pretax Margin (%)0.7% -1.2% -7.6%

Q1 FY25 Mobile sub-segments: Off‑Road $89.1M (-5.9% YoY), On‑Road $32.1M (-15.0%), Aftermarket $451.2M (+10.7%) .

KPIs (oldest → newest)

KPIQ3 FY2024Q4 FY2024Q1 FY2025
Free Cash Flow ($M)$120.2 $106.9 $47.9
Cash Conversion Ratio (%)105.9% 97.4% 48.4%
Capital Expenditures ($M)≈$21 ≈$19 $25.0
Dividends per Share ($)$0.25 $0.27 $0.27
Share Repurchases ($M)$27 $49 $74.9
Effective Tax Rate (%)21.2% 21.3% 24.2%

Guidance Changes

MetricPeriodPrevious Guidance (Q4 FY24)Current Guidance (Q1 FY25)Change
Adjusted EPSFY2025$3.56–$3.72 $3.56–$3.72 Maintained
Sales Growth YoYFY2025+2%–+6% +2%–+6% Maintained
Pricing BenefitFY2025~1% ~1% Maintained
Adjusted Operating MarginFY202515.3%–15.9% 15.3%–15.9% Maintained
Interest ExpenseFY2025~ $21M ~ $21M Maintained
Other IncomeFY2025$16–$20M $16–$20M Maintained
Effective Tax RateFY202523%–25% 23%–25% Maintained
Capital ExpendituresFY2025$85–$105M $85–$105M Maintained
Free Cash Flow ConversionFY202585%–95% 85%–95% Maintained
Share RepurchasesFY20252%–3% of shares 2%–3% of shares Maintained
Mobile SalesFY2025Flat to +4% Flat to +4% Maintained
Off‑RoadFY2025Low‑single‑digit ↑ Low‑single‑digit ↑ Maintained
On‑RoadFY2025Low double‑digit ↓ Low double‑digit ↓ Maintained
AftermarketFY2025Low‑single‑digit ↑ Low‑single‑digit ↑ Maintained
Industrial SalesFY2025+4%–+8% +4%–+8% Maintained
IFSFY2025High‑single‑digit ↑ High‑single‑digit ↑ Maintained
A&DFY2025~Flat ~Flat Maintained
Life Sciences SalesFY2025Low double‑digit ↑ Low double‑digit ↑ Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY24, Q4 FY24)Current Period (Q1 FY25)Trend
Aftermarket share gainsQ3: Aftermarket +11%, mix helping Mobile margins; share gains in independent and OE channels . Q4: Aftermarket +13%, strong mix and pricing .Q1: Aftermarket $451M +11% YoY; OE channel up mid‑teens; independent up mid‑single digits; broad share gains including NAPA .Positive, sustained share wins
Supply chain & deliveriesQ3: “Supply chain mostly supportive,” improving on‑time delivery . Q4: On‑time delivery improved; backlogs solid .“Worked down backlog and improved on‑time delivery; some constraints remain but more normalized overall” .Improving normalization
Pricing/cost inflationQ3: Select input cost deflation, pricing tailwind . Q4: Select deflation, higher labor/investments .Price ~1% for FY25; mixed input costs (labor up); distribution/footprint costs elevated .Normalized pricing cadence; mixed costs
Life Sciences (bioprocessing)Q3: Lowered LS outlook; profitability timing delayed; pipeline intact . Q4: 2026 LS targets revised down; elongated ramp .Restructuring in LS; pretax loss ~-$5M; focus spend on nearer monetization; breakeven targeted FY25; product launches (scale‑X nexo; isotag‑AAV); Medica 49% stake investment .Stabilizing cost base; longer ramp
Aerospace & DefenseQ3: +6% with robust demand . Q4: +40%; FY25 guided flat on tough comps .+26.8% YoY; upside if stubborn component supply constraints clear .Strong demand; supply bottlenecks
IFS / Power GenerationQ3: IFS +2.4%; power gen timing; strong backlogs . Q4: IFS -1.5% on timing .IFS +0.8%; Q1 toughest comp; backlogs support FY growth .Lumpy but constructive
China MobileQ3: China Mobile down 32% . Q4: First‑fit softness (U.S./China) .Mobile China +4% overall; aftermarket double‑digit; Off‑Road turned positive after 5 quarters; not calling inflection .Tentative stabilization
Capital allocationQ3: Dividend +8%; ~2% share buyback plan . Q4: Returned $82M in Q4; FY repurchases 2% .Q1 returns $107M (dividends + buybacks); FY25 buyback 2%–3% planned .Shareholder returns steady

Management Commentary

  • “Record first quarter earnings, driven by robust sales growth and continued margin strength… we gained share in several key businesses while continuing footprint and cost optimization initiatives.” – Tod Carpenter, CEO .
  • “Operating margin was up 20 bps and EPS of $0.83 increased 11% YoY… gross margin 35.6% flat to prior year; expense leverage increased operating margin to 14.9%.” – Brad Pogalz, CFO (adjusted basis) .
  • “Connected Solutions sales… rose significantly… We are optimistic about our growth prospects… and remain focused on scaling our acquired businesses [in bioprocessing].” – CEO .
  • “In A&D we have supply chain bubbles… a couple of piece parts holding back 7‑figure projects… upside if resolved.” – CEO .

Q&A Highlights

  • Working capital/FCF: 47% conversion driven by inventory to ensure on‑time delivery; expects improvement with typical 2H seasonality to reach 85%–95% FY target .
  • Aftermarket drivers: Growth driven primarily by share gains across regions and NAPA win; OE destocking lap helped OE channel .
  • Pricing vs cost: Pricing ~1% for FY; input costs mixed (labor up; some materials down); balanced approach with customers .
  • Life Sciences restructuring: Actions taken to focus expenses on nearer‑term opportunities; expect LS near breakeven for FY25; ability to grow from smaller footprint even if macro slow .
  • A&D supply constraints: Flat FY guide reflects stubborn component shortages; potential upside if parts arrive; tough comps in Q4 last year .
  • IFS cadence: Q1 toughest comp; backlogs strong; timing of projects supports back‑half growth .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY2025 EPS and revenue and FY2025 EPS/targets could not be retrieved due to an S&P Global rate limit error during this session. As a result, we cannot quantify beat/miss versus consensus at this time. We will update when S&P data becomes available.
  • Management reaffirmed FY25 adjusted EPS and sales growth ranges; investors will watch for estimate revisions in Industrial (IFS momentum) and Life Sciences (profit trajectory) given Q1 trends .

Key Takeaways for Investors

  • Mix remains favorable: Aftermarket strength and A&D growth offset OEM softness; Mobile and Industrial margins remain structurally solid despite LS drag .
  • Guidance intact: Reaffirmed FY25 ranges suggest confidence in backlogs, price/cost balance, and expense leverage; upside skew in A&D if supply constraints ease .
  • Watch cash conversion: Q1 trough on working capital; trajectory to 85%–95% will be a key proof point into 2H seasonally stronger quarters .
  • Life Sciences reset: Restructuring narrows focus; breakeven target for FY25 still on; longer commercialization ramp but product launches (scale‑X nexo, isotag‑AAV) progress continues .
  • Industrial visibility: IFS timing explains modest Q1; backlogs support high‑single‑digit FY growth; monitor Europe dust collection and power gen project deliveries .
  • China is a swing factor: Early signs of stabilization in Mobile (aftermarket-led), but management not calling an inflection; stay conservative on first‑fit recovery .
  • Capital returns consistent: Dividend cadence and 2%–3% buyback plan continue; net leverage low with flexibility for targeted M&A, primarily in Life Sciences and industrial services .

Appendix: Source Documents

  • Q1 FY2025 8‑K (Item 2.02) and schedules .
  • Q1 FY2025 Press Release .
  • Q1 FY2025 Earnings Call Transcript –.
  • Dividend press release (Nov 22, 2024) .
  • Prior quarters for trend: Q4 FY2024 PR and call – –; Q3 FY2024 PR and call – –.