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DC

DONALDSON Co INC (DCI)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 sales were $870.0 million, down 0.8% YoY due to FX headwinds (−170 bps) but up 0.9% in constant currency; GAAP EPS was $0.79 and adjusted EPS was $0.83, with adjusted operating margin expanding 40 bps YoY to 15.2% .
  • Guidance tightened: adjusted FY2025 EPS now $3.60–$3.68 (midpoint unchanged), sales flat to +4%, and adjusted operating margin raised to 15.6–16.0% (from 15.3–15.9%)—a positive margin signal despite softer end markets in agriculture and industrial capex .
  • Segment mix: Aftermarket +4% (share gains, strong OEM parts channel), Aerospace & Defense +18.7%, Life Sciences +9.2% (Disk Drive), while Off-Road −12.8% and On-Road −24.4% on weaker equipment production and strategic exits .
  • Management highlighted natural tariff hedges (regional production, U.S. net exporter), readiness to mitigate via supply chain and surcharges; raised A&D outlook to high-single-digit growth on improved supplier performance—potential catalysts for sentiment and margin durability .
  • Consensus estimates from S&P Global were unavailable; result-versus-estimate comparisons could not be completed (S&P Global data access limit). Values not included due to unavailability.

What Went Well and What Went Wrong

What Went Well

  • Adjusted operating margin expanded to 15.2% (+40 bps YoY) on disciplined OpEx control; gross margin held at 35.2% despite unfavorable mix .
  • Aftermarket grew 4% with “low double-digit growth in the OE channel” and near-100% fill rates from the Olive Branch distribution center, underscoring share gains and execution in parts .
  • Aerospace & Defense +18.7% (robust Defense); management raised full-year A&D outlook to high-single digits as supply chain performance improved versus prior expectations of flat growth .

What Went Wrong

  • Mobile first-fit softness: Off-Road −12.8% (agriculture weakness), On-Road −24.4% (global truck production decline and exit of non-strategic products) .
  • Industrial Filtration Solutions −7.5% on slower capex investment and Power Generation timing, pressuring Industrial pretax margins by −190 bps YoY (to 16.1%) .
  • Life Sciences project-based bioprocessing remains subdued; management noted absence of large upstream capex replacements, driving a guarded outlook (segment still near breakeven for full year) .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Net Sales ($USD Millions)$876.7 $900.1 $870.0
GAAP Diluted EPS ($)$0.81 $0.81 $0.79
Adjusted Diluted EPS ($)$0.81 $0.83 $0.83
Gross Margin % (GAAP)35.2% 35.5% 35.2%
Operating Margin % (GAAP)14.8% 14.5% 14.4%
Operating Margin % (Adjusted)14.8% 14.9% 15.2%
EBITDA Margin % (GAAP)18.2% 17.9% 17.9%
EBITDA Margin % (Adjusted)18.2% 18.3% 18.7%
Effective Tax Rate %23.5% 24.2% 23.2%

Segment net sales and profitability:

Segment / BU ($USD Millions)Q2 2024 Net SalesQ1 2025 Net SalesQ2 2025 Net SalesQ2 2024 EBTQ2 2025 EBT
Mobile Solutions – Off-Road$91.9 $89.1 $80.2 ——
Mobile Solutions – On-Road$33.5 $32.1 $25.3 ——
Mobile Solutions – Aftermarket$424.9 $451.2 $442.0 ——
Total Mobile Solutions$550.3 $572.4 $547.5 $99.2 $95.5
Industrial – IFS$224.5 $212.4 $207.5 ——
Industrial – Aerospace & Defense$38.9 $45.2 $46.2 ——
Total Industrial Solutions$263.4 $257.6 $253.7 $47.4 $40.9
Life Sciences$63.0 $70.1 $68.8 $(5.8) $(0.5)
Corporate & Unallocated (EBT)———$(11.8) $(10.9)
Total Company$876.7 $900.1 $870.0 $129.0 $125.0

KPIs and cash metrics:

KPIQ2 2024Q1 2025Q2 2025
Free Cash Flow ($USD Millions)$65.8 $47.9 $71.5
Operating Cash Flow ($USD Millions)$87.0 $72.9 $90.4
Net Capital Expenditures ($USD Millions)$21.2 $25.0 $18.9
Cash Conversion Ratio % (GAAP)66.7% 48.4% 74.4%
Dividend Paid per Share ($)$0.25 $0.27 $0.27

Guidance Changes

MetricPeriodPrevious Guidance (Q1 FY2025)Current Guidance (Q2 FY2025)Change
Adjusted EPSFY2025$3.56–$3.72 $3.60–$3.68 Narrowed; midpoint maintained
Total SalesFY2025+2% to +6% YoY Flat to +4% YoY (≈ −1% FX headwind; ≈ +1% pricing) Lowered
Adjusted Operating MarginFY202515.3%–15.9% 15.6%–16.0% Raised
Mobile Solutions SalesFY2025Flat to +4% −1% to +3% Lowered
Off-RoadFY2025Low single-digit increase Mid-single-digit decline Lowered
On-RoadFY2025Low double-digit decline Low double-digit decline Maintained
AftermarketFY2025Low single-digit increase Low single-digit increase Maintained
Industrial Solutions SalesFY2025+4% to +8% +1% to +5% Lowered
IFSFY2025High single-digit increase Low single-digit increase Lowered
Aerospace & DefenseFY2025Flat High single-digit increase Raised
Life Sciences SalesFY2025Low double-digit increase High single-digit increase Lowered
Interest ExpenseFY2025≈$21M ≈$21M Maintained
Other IncomeFY2025$16–$20M $18–$20M Narrowed high end
Effective Tax RateFY202523%–25% 23%–25% Maintained
Capital ExpendituresFY2025$85–$105M $85–$100M Tightened
Free Cash Flow ConversionFY202585%–95% 85%–95% Maintained
Share RepurchasesFY20252%–3% of shares 2%–3% of shares Maintained
Dividend cadenceNear-term27.0¢/share (declared Jan 29, 2025) As declared; continues Aristocrats status Confirmed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024 and Q1 FY2025)Current Period (Q2 FY2025)Trend
Margin profile and OpEx disciplineFY2024 exit margins improved; adjusted operating margin 16.3% in Q4 Adjusted operating margin +40 bps YoY to 15.2%; FY2025 margin guidance raised Positive; sustained leverage
Aftermarket strength & channel mixQ1 Aftermarket +10.7% on destocking lap and share gains Aftermarket +4%; OE parts channel strong; independent channel cautious but improved as quarter progressed Still positive; mixed channel dynamics
Aerospace & DefenseQ4 A&D +39.7%; Q1 +26.8% Q2 +18.7%; guidance raised to HSD on better supplier performance Strong; improving supply chain
Industrial capex (IFS) and Power Gen timingQ1 IFS +0.8% aided by PG timing IFS −7.5% on slower capex; PG timing accounted for ~half of the quarterly reduction; recovery expected in 2H Near-term headwind; backlog supports 2H
Tariffs & regionalizationNot highlighted in Q1 PRCFO: natural hedges (75% region-to-region), U.S. net exporter; prepared to mitigate via surcharges if enacted Watchlist; mitigation plans in place
China and Off-RoadQ4 off-road weak in China/US China near trough; win in hydraulics for tractors; structural shift to larger equipment supports tech-led products Constructive signs amid macro weakness
Life Sciences (bioprocessing, Disk Drive)Q4 LS +20.7%; Q1 LS +16.6% (Disk Drive, Food & Bev) LS +9.2% (Disk Drive); bioprocessing capex subdued; cost actions improved margins; breakeven FY target Improving margins; top-line moderated
Connected solutionsNot in prior PRsConnected machines +30% YTD; facilities +29%; strengthens parts pull-through Adoption accelerating

Management Commentary

  • CEO: “We delivered for our stakeholders… earnings rose at a faster pace, reflecting overall margin improvement… diligently managed cost and pricing and exercised strong expense discipline while still investing for the future.”
  • CEO on Mobile: “Our fill rates remain at almost 100%… well positioned to address all future engine adoption scenarios with our alternative power solutions.”
  • CFO: “We are increasing the midpoint of our operating margin guidance… 15.6% to 16.0%… demonstrates our focus on expanding our margin profile.”
  • CFO on tariffs: “Given these organic hedges, our biggest exposure to incremental tariffs is more limited… we have plans to mitigate… through supply chain and price adjustments, including surcharges.”
  • CEO on Industrial/A&D: “Demand for new equipment in commercial aerospace has been at record levels and defense orders and quoting activity are very strong.”

Q&A Highlights

  • China Off-Road/Structural shift: Recent hydraulics win for tractors; shift toward larger, more sophisticated equipment bodes well for Donaldson’s technology-led products .
  • Aftermarket channel divergence: OEM parts channel focus and demand strong; independent channel cautious but net aftermarket growth continues; guide unchanged as effects offset .
  • IFS visibility/power generation: PG timing drove ~half of the quarterly decline but revenue expected to shift to 3Q/4Q; industrial project softness tied to slower electrification-related capex .
  • A&D granularity: Both aerospace and defense strong; supply chain hurdles easing through supplier performance improvements, driving raised outlook .
  • Connected solutions and margin trajectory: Adoption up sharply (connected machines +30%); OpEx leverage expected to carry into 2H; lower headcount and discretionary spend underpin margin expansion .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q2 FY2025 were unavailable due to access limits (Daily Request Limit exceeded). As a result, we cannot provide actual-versus-consensus comparisons for the quarter. When S&P Global data access is restored, we recommend updating the recap with EPS, revenue, and margin beats/misses versus consensus [GetEstimates error].

Key Takeaways for Investors

  • Mix resilience: Aftermarket and A&D strength offset first-fit Mobile and IFS softness; adjusted operating margin expansion and raised FY margin guidance demonstrate cost discipline and pricing power .
  • Near-term headwinds: Agriculture and industrial capex remain weak; IFS recovery is tied to project timing with power generation expected to rebound in 2H—monitor order intake and backlog conversion .
  • Life Sciences trajectory: Cost actions materially improved margins; top-line growth moderated with bioprocessing capex subdued—breakeven FY target appears achievable if Disk Drive and Food & Bev sustain .
  • Tariff risk managed: Natural hedges and surcharge readiness reduce earnings volatility if new tariffs are enacted; minimal immediate behavioral shifts from customers, but requests to localize production are rising .
  • Channel signals: OEM parts channel in aftermarket remains a bright spot; independent channel caution improved through the quarter—watch for sustained momentum into Q3 .
  • Strategic positioning: Hydrogen fuel cell air filtration partnership with DTNA (SuperTruck III) underscores leadership in alternative power technologies—an emerging growth vector in Mobile Solutions .
  • Capital return and balance sheet: Dividend maintained (27.0¢/share) and 2–3% FY share repurchase plan; capex focused on capacity and new technologies; cash conversion expected to improve in 2H as inventories normalize .

2-4 additional data points:

  • Year-to-date dividends paid: $64.6M; repurchased ~0.9% of shares for $81.4M YTD through Q2 .
  • Geographic mix Q2: U.S./Canada +3.8% YoY; EMEA −9.2%; APAC +0.5%; LATAM +1.7% .
  • Effective tax rate improved to 23.2% (from 23.5% YoY) on favorable global earnings mix .