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Jan 31, 2020
Donaldson Q2 2020 Earnings Report
Donaldson's Q2 2020 earnings were driven by strong gross margin and disciplined expense management.
Key Takeaways
Donaldson Company reported a 7.2% increase in net earnings to $64.4 million and an 8.7% increase in GAAP EPS to $0.50, despite a 5.9% decline in sales. Strong gross margin performance and disciplined expense management contributed to the increase in net income.
Net earnings increased by 7.2% compared to the prior year.
GAAP EPS increased by 8.7% year-over-year.
Sales declined by 5.9% due to lower unit volume.
Gross margin increased by 1.7 percentage points to 33.7%.
Donaldson
Donaldson
Forward Guidance
Donaldson updated its full-year 2020 sales forecast to reflect softer-than-expected market conditions, primarily in the Engine Aftermarket and IFS businesses, which contributed to the revised forecasts for operating margin and EPS. Donaldson now expects fiscal 2020 GAAP EPS between $2.05 and $2.19.
Positive Outlook
- Company expects year-over-year gross margin improvement due to benefits from production and supply chain optimization.
- Company expects year-over-year gross margin improvement due to procurement savings and pricing initiatives.
- Company expects to mitigate the loss of leverage on lower sales with disciplined expense management.
- Company expects to mitigate the loss of leverage on lower sales with lower incentive compensation.
- Other income is now forecast between $7 million and $11 million.
Challenges Ahead
- Fiscal 2020 sales are now projected to decline between 7 and 3 percent compared with 2019.
- Engine sales are now projected to decline between 9 and 5 percent compared with 2019.
- Industrial sales are now projected in a range between a 3 percent decline and a 1 percent increase compared with 2019.
- Sales of SA are still expected to be down from the prior year.
- The updated fiscal 2020 guidance does not reflect the divestiture of Exhaust and Emissions.