Q2 2025 Earnings Summary
- Donaldson is experiencing market share gains in the Mobile Solutions aftermarket business, winning share quarter after quarter, and expects these gains to continue into fiscal 2026. They have factual data tracking competition which confirms these gains.
- The company is seeing significant growth in connected solutions within its Industrial Solutions segment, with year-to-date growth of 30% in connected machines and 29% growth in connected facilities in the first six months. This expansion leads to increased customer relationships and higher parts and replacement part sales.
- Donaldson achieved a recent technology win in China within the hydraulics sector for tractors, demonstrating continued success with their technology-based platform and proprietary products, gaining traction in new applications beyond air-based solutions. This structural shift towards larger and more sophisticated equipment bodes well for their technology-led products.
- Independent aftermarket channel, accounting for 60% of the aftermarket business, is experiencing a cautious tone and pullback in demand, potentially indicating weakening in that segment.
- Unexpected FX headwinds are leading the company to pull down costs and prioritize expenditures, which may impact investment in growth opportunities.
- The company does not see signs of pent-up demand for next year and is adjusting guidance based on current end-market conditions, suggesting continued challenges in their markets.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –0.8% (from ~$876.7M to $870.0M) | Total revenue declined slightly as overall sales fell from ~$876.7M in Q2 2024 to $870.0M in Q2 2025, with modest headwinds from weakness in key Engine Products segments offset by other areas. |
Mobile Solutions | –0.5% (from $550.3M to $547.5M) | Mobile Solutions remained almost flat, as declines in certain sub-segments were mostly offset by gains in others; while Off‐Road and On‐Road revenues dropped, aftermarket improvements helped keep the overall figure very close to the prior year. |
Off‑Road Revenue | –12.7% (from $91.9M to $80.2M) | Off‑Road revenue fell sharply by 12.7%, reflecting softer demand and market weakness in off‑road applications, setting a notable downtrend from the previous period. |
On‑Road Revenue | –24.2% (from $33.5M to $25.3M) | On‑Road revenue dropped significantly by 24.2%, as lower equipment production and weaker market conditions in this sub‑segment led to a dramatic fall compared to Q2 2024. |
Aftermarket Revenue | +4.0% (from $424.9M to $442.0M) | Aftermarket revenue grew modestly by around 4%, driven by increased replacement part demand which helped partially counterbalance losses in off‑road and on‑road sales. |
Aerospace & Defense Revenue | +18.5% (from $38.9M to $46.2M) | Aerospace & Defense revenue increased by 18.5%, reflecting robust end-market conditions and program wins that enhanced the performance compared to the prior year’s $38.9M. |
Industrial Solutions Revenue | –3.7% (from $263.4M to $253.7M) | Industrial Solutions revenue declined by 3.7%, driven by overall softness in the industrial market, with weaker performance in some areas affecting the total from $263.4M in Q2 2024 to $253.7M. |
Industrial Filtration Solutions | –7.5% (from $224.5M to $207.5M) | Industrial Filtration Solutions dropped 7.5%, likely due to subdued project activity and challenging market conditions affecting this key industrial component. |
Life Sciences Revenue | +9.2% (from $63.0M to $68.8M) | Life Sciences revenue improved by 9.2%, reflecting stronger market dynamics and increased demand that raised sales from $63.0M in Q2 2024 to $68.8M. |
U.S. and Canada Revenue | +3.7% (from $376.9M to $391.0M) | U.S. and Canada saw a 3.7% increase, driven by improved domestic performance—benefiting from pricing advantages and stronger local demand compared to Q2 2024. |
EMEA Revenue | –9.3% (from $251.6M to $228.3M) | EMEA revenue declined by 9.3%, reflecting economic and market challenges in Europe, the Middle East, and Africa, which considerably weighed on sales relative to the prior period. |
APAC Revenue | Essentially flat ($151.9M vs. $151.0M) | APAC performance remained stable, with net sales virtually unchanged from Q2 2024, suggesting balanced local conditions despite broader market fluctuations. |
LATAM Revenue | Modest increase (from $97.2M to $98.8M) | LATAM revenue experienced a slight uptick, growing moderately as improvements in some business sub‑segments marginally boosted the region’s overall performance. |
Operating Income | –3.0% (to $125.5M) | Operating income dropped by about 3% to $125.5M, as cost pressures and a decline in higher-margin sub‑segments led to earnings pressure despite relatively stable sales. |
Net Income | –2.8% (to $95.9M) | Net income fell by roughly 2.8% to $95.9M, indicating that softer revenue and increased operating expenses slightly eroded overall profitability compared to Q2 2024. |
EPS – Basic and Diluted | Basic: ~$0.8; Diluted: ~$0.79 | EPS faced modest pressure, with basic and diluted EPS at $0.8 and $0.79 respectively, reflecting the combined impact of lower operating income and segmented revenue declines. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Sales | FY 2025 | up 2% to 6% | Flat to up 4% | lowered |
Mobile Solutions | FY 2025 | flat to up 4% | down 1% to up 3% | lowered |
Off-Road Sales | FY 2025 | grow low single digits | decline mid-single digits | lowered |
On-Road Sales | FY 2025 | decline low double digits | decline low double digits | no change |
Aftermarket Sales | FY 2025 | grow low single digits | grow low single digits | no change |
Industrial Solutions | FY 2025 | increase 4% to 8% | increase 1% to 5% | lowered |
IFS (Industrial Filtration Solutions) | FY 2025 | grow high single digits | grow low single digits | lowered |
Aerospace and Defense | FY 2025 | flat | grow high single digits | raised |
Life Sciences Sales | FY 2025 | grow low double digits | grow high single digits | lowered |
Operating Margin | FY 2025 | 15.3% to 15.9% | 15.6% to 16% | raised |
Adjusted EPS | FY 2025 | $3.56 to $3.72 | $3.60 to $3.68 | no change |
Life Sciences Profitability | FY 2025 | approximately breakeven for the full year | breakeven for the full year, with modest profitability in the second half | no change |
CapEx | FY 2025 | $85 million to $105 million | $85 million to $100 million | lowered |
Cash Conversion | FY 2025 | 85% to 95% | 85% to 95% | no change |
Share Buybacks | FY 2025 | repurchase 2% to 3% of outstanding shares | repurchase 2% to 3% of outstanding shares | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Sales (yoy) | Q2 2025 | 2% to 6% increase | -0.76% (from 876.7To 870.0) | Missed |
Mobile Solutions (yoy) | Q2 2025 | Flat to up 4% | -0.51% (from 550.3To 547.5) | Met |
Industrial Solutions (yoy) | Q2 2025 | 4% to 8% increase | -3.68% (from 263.4To 253.7) | Missed |
Life Sciences (yoy) | Q2 2025 | Low double digits | +9.2% (from 63.0To 68.8) | Missed |
Operating Margin | Q2 2025 | 15.3% to 15.9% | 14.4% (calculated from 125.5Operating income ÷ 870.0Total revenue) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Mobile Solutions Market Share Gains | Consistently emphasized in Q1 2025, Q4 2024, and Q3 2024 calls as a key driver in the aftermarket segment with broad-based share gains and double‐digit/mid-single digit growth | Reiterated in Q2 2025 with multiple mentions, with strong execution and near‑100% fill rates supporting 4% y/y aftermarket sales growth | Steady and reinforcing growth strategy across periods. |
Connected Solutions Growth | Highlighted in Q1 2025 and Q4 2024 with significant year‑over‑year rises in connected machines and facilities; no specific mention in Q3 2024 | Emphasized robust year‑to‑date connected growth (30% in machines and 29% in facilities) and commitment to market–leading connected products | Continued robust momentum with expanded market focus. |
Technology Innovation | Covered in Q1 2025 (bioprocessing, China tech, and scale‑X nexo bioreactor), in Q4 2024 (technology‑led products and China wins), and in Q3 2024 (advanced bioprocessing and strategic partnerships) | Focus includes a significant China technology win in liquid hydraulics, hydrogen fuel cell innovation, and ongoing R&D investments across segments | Sustained and diversified innovation focus with deepening strategic application. |
Strategic Acquisitions (Medica S.p.A) | Discussed consistently in Q1 2025, Q4 2024, and Q3 2024 with details on the 49% stake, call option, and expected future revenue contribution | No specific mention of the Medica S.p.A acquisition or related updates in Q2 2025 earnings [—] | Reduced emphasis or a temporary absence in current commentary. |
Life Sciences Segment Challenges and Strategic Investments | Addressed in Q1 2025 (difficult market, cost initiatives, scaling bioprocessing), Q4 2024 (muted demand, capital spending constraints, and Medica investment), and Q3 2024 (sales guidance cuts and acquisitions) | Focus on ongoing challenges with bioprocessing weakness and constrained capital spending, yet noted significant pretax loss improvements via cost optimization and continued strategic investment across legacy and R&D projects | Persistent challenges with incremental improvements through focused investments and expense discipline. |
Aerospace and Defense Supply Chain Challenges | Q1 2025 detailed stubborn supply chain issues impacting piece parts for seven‐figure projects; Q3 and Q4 2024 showed strong sales without mention of supply hurdles | Noted improvement in supplier performance that helped overcome earlier supply chain hurdles, with guidance positively impacted | Positive shift, indicating resolution of earlier supply chain issues. |
Independent Aftermarket Channel Demand Concerns | Q1 2025 described steady demand driven by market share gains; Q4 2024 mentioned normalized demand as OE destocking effects lapped; Q3 2024 reported high single digit growth in the channel | Addressed as a slight pullback in the independent channel with flat constant currency sales offset by strong OE channel performance and near‑100% fill rates | Mixed sentiment but overall market share gains continue to mitigate demand softness. |
FX Headwinds Impact | Q1 2025 reported a favorable 1% tailwind from currency; Q3 and Q4 2024 did not focus on FX issues | Highlighted as a 2% headwind on total sales and a major factor in lowering full‑year guidance, marking a clear shift compared to the previous period | Notable shift from FX tailwind to headwind, reflecting changing macroeconomic conditions. |
Cost Efficiency and Operating Margin Enhancement Initiatives | Discussed in Q1 2025 (margin improvement, restructuring, balanced input costs), Q4 2024 (cost optimization, footprint program, margin expansion) and Q3 2024 (gross margin expansion driving operating margin improvement) | Reaffirmed in Q2 2025 with improved operating margin guidance (midpoint at 15.8% and 20 bp increase), disciplined expense management, and measures to counter headwinds | Consistent emphasis on disciplined cost management leading to sustained margin improvements. |
Exiting Non-Strategic Product Lines and On-Road Market Softening | In Q4 2024, the exit of non‑strategic products was linked to a headwind in first-fit on-road sales; Q3 2024 mentioned slight on-road softening without exit specifics; Q1 2025 did not cover this topic | Q2 2025 mentioned a 24% decline in on-road sales, attributed partly to exiting non‑strategic product lines amid global truck production declines | Continued strategic repositioning causing on-road softness, viewed as a deliberate realignment. |
Free Cash Flow Conversion Challenges | Q1 2025 noted low conversion (47%) due to working capital investments, while Q3 2024 and Q4 2024 showed improved conversion, even above historical averages (106% and 93% respectively) | Q2 2025 did not report specific FCF conversion challenges and maintained an outlook of 85% to 95% conversion with expected second‑half improvement | Stabilizing trend with improved performance and assured near‑historical conversion levels. |
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Mobile Aftermarket Share Gains
Q: How are share gains driving aftermarket growth?
A: Donaldson is winning share gains in the mobile aftermarket, with internal models confirming gains against competitors quarter after quarter. Management expects these gains to continue into fiscal '26. -
Margin Outlook Improvement
Q: Will margins improve in the second half?
A: Margins are expected to improve across all segments in the second half, driven by natural sales leverage and focused expense management, including lower headcount and reduced discretionary spending. Operating expense leverage will be a meaningful contributor. -
IFS Guidance Adjustment
Q: What's impacting the Industrial Filtration Solutions outlook?
A: The IFS segment faced project timing shifts, particularly in power generation, which moved revenue into the next quarters. Additionally, there was a pullback in capital-based projects in the automotive sector due to slower-than-expected electrification. Despite this, power generation remains strong with visibility for another 1 to 1.5 years. -
Life Sciences Technology Progress
Q: How is Life Sciences technology development progressing?
A: Donaldson has focused its Life Sciences product development, making significant progress with disruptive technologies. Some products are now in testing and are quarters away from market release, positioning the business for growth when market conditions improve. -
Electrification Impact on Projects
Q: How is slower electrification affecting business?
A: Automotive-related capital projects, especially in electrification like battery manufacturing, have pulled back, impacting IFS. This reflects that electrification is not progressing as quickly as anticipated. -
China Technology Wins
Q: Tell us about the recent China win.
A: Donaldson continues to achieve technology wins in China, with a recent success in the liquid hydraulics sector for tractors. This adds to momentum in air-based applications, showing traction in new areas. -
Aerospace and Defense Strength
Q: Where is the strength in Aerospace and Defense?
A: Strength is seen in both aerospace and defense. Improved supplier performance has overcome anticipated supply chain issues, allowing backlog and orders to convert to revenue and improving guidance. -
Connected Solutions Adoption
Q: Are connected solutions seeing increased adoption?
A: Yes, year-to-date growth in connected machines is 30%, and in facilities 29%. Broad customer adoption is evident, with instances of sites connecting all dust collectors, enhancing customer relationships and increasing parts sales. -
Off-Road Sector Demand and Tariffs
Q: How are tariffs affecting off-road demand?
A: There have been no pre-buys or destocking due to tariffs in the off-road sector. OEMs are not taking on additional inventory, though some are inquiring about manufacturing capabilities outside the U.S. No significant behavioral changes are observed. -
Mobile Solutions Margins
Q: What is the outlook for Mobile margins?
A: Margins in the Mobile segment are expected to improve in the second half due to sales leverage and expense management efforts. Mix headwinds are being offset by growth in aftermarket sales.