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DC

DONALDSON Co INC (DCI)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY2025 delivered record sales and robust profitability: revenue $980.7M (+4.8% YoY), GAAP diluted EPS $0.97 (+7.8% YoY), adjusted EPS $1.03 (+9.6% YoY). Sequentially, revenue rose from $940.1M in Q3 and $870.0M in Q2. Management attributed gross margin compression to tariff-related inflation and LIFO inventory valuation effects, partially offset by operating expense leverage .
  • Results beat Wall Street consensus: EPS $1.03 vs $1.017*, revenue $980.7M vs $951.6M*, continuing an estimate beat trend from Q3 (EPS $0.99 vs $0.947*, revenue $940.1M vs $933.4M*) after a Q2 miss (EPS $0.83 vs $0.848*, revenue $870.0M vs $908.3M*) . Values retrieved from S&P Global.
  • FY2026 guidance targets another record year: sales +1–5% to ~$3.8B midpoint; EPS $3.92–$4.08; operating margin 16.1–16.7%; FCF conversion 85–95%; share repurchases 2–3% of shares; tax rate 23.5–25.5% .
  • Stock reaction catalyst: broad-based beats vs consensus and confident FY2026 margin expansion outlook amid tariff headwinds; industrial power generation “super cycle” and aftermarket share gains provide durable growth drivers .

What Went Well and What Went Wrong

  • What Went Well

    • Aftermarket strength and share gains: Mobile aftermarket hit $467.5M (+3.3% YoY) with strong OE and independent channels; CEO highlighted new Mighty Distributing partnership and $1B independent channel milestone, supporting durable growth .
    • Industrial Filtration Solutions acceleration: IFS sales $262.4M (+10.5% YoY) on dust collection demand in Europe/US and power generation project timing; CFO underscored record segment pretax margin 20.9% (+80 bps YoY) .
    • Life Sciences improving mix: sales $82.4M (+14.1% YoY) with strong Food & Beverage and Disk Drive; pretax margin improved to 5.3% from -1.2% on cost optimization and higher-margin legacy businesses .

  • What Went Wrong

    • Gross margin compression: GAAP gross margin fell 130 bps YoY to 34.5% (adjusted 34.8% vs 36.2% prior), driven by tariff-related inflation and LIFO valuation impacts (management indicated underlying gross margin would be roughly flat excluding LIFO) .
    • On-Road softness: Mobile On-Road sales dropped 20.1% YoY on lower truck production, especially in the U.S., limiting Mobile segment growth to +2.3% YoY .
    • Tariffs and macro remain fluid: CFO reiterated plan to be profit-dollar neutral over time via region-for-region footprint, USMCA qualification for ~90% of goods from Mexico, and pricing “muscle,” but near-term inflationary effects pressured results .

Financial Results

MetricQ2 2025Q3 2025Q4 2025
Revenue ($USD Millions)$870.0 $940.1 $980.7
GAAP Diluted EPS ($)$0.79 $0.48 $0.97
Adjusted Diluted EPS ($)$0.83 $0.99 $1.03
Gross Margin (%)35.2% 34.2% 34.5%
Operating Margin (%)14.4% 9.3% 15.5%
Adjusted Operating Margin (%)15.2% 16.3% 16.4%
Effective Tax Rate (%)23.2% 33.6% 23.6%
Cash Conversion Ratio (%)74.4% 126.2% 131.0%
YoY Revenue Change (%)-0.8% +1.3% +4.8%
Segment Net Sales ($USD Millions)Q4 2025YoY %
Mobile Solutions – Aftermarket$467.5 +3.3%
Mobile Solutions – Off-Road$94.6 +5.1%
Mobile Solutions – On-Road$26.3 -20.1%
Total Mobile Solutions$588.4 +2.3%
Industrial Filtration Solutions$262.4 +10.5%
Aerospace & Defense$47.4 -5.9%
Total Industrial Solutions$309.8 +7.7%
Life Sciences$82.4 +14.1%
Total Company$980.7 +4.8%
Estimates vs ActualsQ2 2025Q3 2025Q4 2025
EPS – Consensus Mean ($)0.8475*0.9471*1.0171*
EPS – Actual ($)0.83 0.99 1.03
ResultMissBeatBeat
Revenue – Consensus Mean ($MM)908.3*933.4*951.6*
Revenue – Actual ($MM)870.0 940.1 980.7
ResultMissBeatBeat

Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY2025$3.60–$3.68 (Q2 update) $3.64–$3.70 (Q3 update; midpoint +$0.03) Raised
Sales GrowthFY2025Flat to +4% +1% to +3% (unchanged language) Maintained
Operating Margin (Adjusted)FY202515.6–16.0% 15.6–16.0% Maintained
EPSFY202616% operating margin target at Investor Day 2023 $3.92–$4.08 EPS; Op margin 16.1–16.7% New; Above prior target
SalesFY2026N/A+1–5% YoY; ~$3.8B midpoint New
Interest ExpenseFY2026N/A$22–$23M New
Other IncomeFY2026N/A$14–$18M New
Effective Tax RateFY2026N/A23.5–25.5% New
CapexFY2026N/A$65–$85M New
FCF ConversionFY2026N/A85–95% New
Share RepurchasesFY2026N/A2–3% of shares New
DividendQ4 2025$0.27 prior year $0.30 declared (Aug 27, 2025 pay date) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Tariffs, LIFO, price-costExpect net impact immaterial; adjusted margin leverage (Q2/Q3) Tariff inflation and LIFO drove gross margin compression; plan to be profit-dollar neutral via footprint, USMCA, pricing Stabilizing; mitigation actions in place
Aftermarket share gainsAftermarket growth low-single digits; OE restocking; share gains (Q2/Q3) Continued strength; Mighty Distributing partnership; $1B independent channel milestone Strengthening
Power generation “super cycle”Timing affected IFS in Q2; strong A&D (Q2/Q3) Super cycle continues; long backlog visibility; disciplined pricing Durable tailwind
Life Sciences bioprocessingImpairment charges in Q3 upstream; legacy F&B/Disk Drive strong (Q2/Q3) Legacy businesses strong; downstream product commercialization likely FY2027 timing Improving mix; bioprocessing delayed
Connected solutionsNoted strategy in IFS (Q3) Target >30% growth in connected machines FY2026; boosts replacement parts revenue (non-subscription model) Scaling
China mobileMixed in prior quarters Fourth consecutive quarter of growth; cautious outlook; new hydraulics win Gradual improvement
Footprint optimizationOngoing; restructuring charges in Q2/Q3 “Heavy lift” phase progressing; efficiency actions to drive FY2026 margins Execution on track

Management Commentary

  • “Our fourth quarter earnings results…represent a strong finish to a record fiscal 2025.”
  • “In fiscal 2026, we expect another year of record sales, achieving $3.8 billion…resulting in an all-time high operating margin ahead of the fiscal 2026 target laid out one year ago.”
  • CFO: “The impact from tariff related inflation on our LIFO inventory valuation was significant this quarter…excluding the impact of LIFO…gross margin would have been approximately flat to the prior year.”
  • CFO: “Over time, we plan to be profit dollar neutral with respect to ongoing tariffs…region for region footprint…~90% USMCA qualified…pricing muscle.”
  • CEO: “Power gen super cycle…we do not see an end in sight…longest look on backlogs in the company.”

Q&A Highlights

  • Agriculture trough: Management saw ag bottom during the quarter; expects low single-digit improvement, not a sharp rebound .
  • Bioprocessing commercialization timeline: Downstream products progressing; meaningful revenue likely FY2027 as GMP scale-up completes; FY2026 mid-single-digit Life Sciences growth driven by legacy businesses .
  • IFS growth drivers: Broad-based across dust collection, services, replacement parts; not reliant on a single business line .
  • Margin trajectory and incremental margins: FY2026 midpoint operating margin ~16.4% (+70 bps YoY) primarily from gross margin expansion and expense leverage; more weighted to H2 .
  • Connected solutions monetization: Not subscription; increases replacement parts pull and deepens customer relationships, lifting aftermarket mix and margins .

Estimates Context

  • Q4 FY2025: EPS $1.03 vs $1.017* and revenue $980.7M vs $951.6M* — both beats; EBITDA actual $181.2M vs $189.1M* estimate (slight miss), consistent with LIFO/tariff headwinds . Values retrieved from S&P Global.
  • Q3 FY2025: EPS $0.99 vs $0.947* and revenue $940.1M vs $933.4M* — beats; adjusted margin improved YoY . Values retrieved from S&P Global.
  • Q2 FY2025: EPS $0.83 vs $0.8475* and revenue $870.0M vs $908.3M* — misses amid On-Road/Off-Road weakness and currency headwinds . Values retrieved from S&P Global.
  • FY2025: EPS $3.68 vs $3.664* and revenue $3.6909B vs $3.6621B* — marginal beats; supports FY2026 margin expansion plans . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Broad-based Q4 beat and confident FY2026 margin expansion (16.1–16.7%) underpin near-term positive setup; focus on aftermarket mix and IFS growth as near-term drivers .
  • Monitor tariff/LIFO mechanics: management expects profit-neutrality over time; near-term volatility may persist but pricing and footprint strategies mitigate risk .
  • Power generation projects and connected solutions strengthen recurring aftermarket revenue, supporting resilient earnings through cycle .
  • Life Sciences recovery anchored in Food & Beverage and Disk Drive; bioprocessing revenue step-up more likely FY2027 — reset expectations accordingly .
  • Mobile On-Road headwinds easing into FY2026 (high-single-digit rebound), while Off-Road mid-single-digit growth and independent channel share gains should sustain aftermarket strength .
  • Capital deployment remains balanced: 2–3% buybacks in FY2026, continued dividend support ($0.30 in Q4), with disciplined M&A in Life Sciences/Industrial .
  • Watch H2 weighting: management indicates profitability more back-half weighted; sequential improvements align with guidance cadence .