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» Donaldson Company Inc. F1Q10 (Qtr End 31/10/09) Earnings Call Transcript
Next, I need to review our Safe Harbor statement with you. Any statements in this call regarding our business that are not historical facts are forward-looking statements, and our future results could differ materially from the forward-looking statements made today. Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings.Now I’d like to turn the call over to Bill Cook. Bill? William Cook Thanks, Rich, and good morning everyone. As you’ve seen in the press release we issued earlier this morning, we had a very good third quarter as we set records for our sales, our operating margin, and our earnings per share. I’d like to take a few minutes to review our results. Our third quarter sales were 647 million, up 9% over last year. Excluding the negative impact of foreign currency translation due to the strengthening of the U.S. dollar, we actually achieved organic sales growth of 11%. The combination of our 11% organic sales growth and a 15.2% operating margin helped to deliver a net income increase of 15% and earnings per share increase of 18% to an EPS record of $0.46 per share. As you know, within our company we have two reporting segments, and I’d like to cover a few highlights for each. I’ll start first with our engine products segment. Excluding the impact of foreign exchange, our local currency sales increased 10%. The primary drivers of this 10% year-over-year increase were our first fit OEM businesses, on-road and off-road, which were up 37 and 13% respectively. The 37% increase in our on-road product sales was primarily due to a significant rebound in North American new heavy truck build rates at our customers. For example, Class A heavy truck builds in North America were 77,000 in our third quarter, a 44% increase over last year. We also saw strong year-over-year growth in Japan as a result of that country’s recovery from last year’s earthquake and tsunami.
Our off-road product sales were up 13% as the agricultural and mining end markets our customers serve remained strong globally, and the U.S. construction equipment market continued to enjoy a strong replacement cycle. The ongoing strength in these end markets has increased the demand for our customers’ new equipment, upon which our air and liquid filtration systems are installed. We also had help during the quarter from our engine aftermarket business as replacement filter sales were up 6% as utilization rates of existing truck and off-road equipment fleets were good in the Americas.We also are continuing to expand our distribution networks and product line. Since our last call, we’ve added another 94 distributor with the majority of these latest distribution additions in Asia, Latin America and the U.S. Also during the past three months, we’ve added over 300 part numbers to our product offering with the majority of these adds in our emerging market businesses. Now switching to our industrial products segment, our local currency sales increased 13% as we delivered very good results across all three product groups. Our largest industrial product group, Industrial Filtration Solutions, grew local currency sales by 11%. Sales growth was good in both the U.S. and Europe during the quarter for both new Torit dust collection equipment and replacement filters for those systems already installed in the field. Our second industrial product group, Gas Turbine Systems, our sales were up 17% in the quarter driven mainly by strong demand for new power generation systems as this late-cycle business is now just beginning to ramp up. Finally, our sales of special application products increased 14% with solid sales growth from product lines serving the disc drive, membrane and venting markets. As we mentioned on our last call, our disc drive filter sales have continued to recover from the impact of last fall’s floods in Thailand and are now back to pre-flood or normal levels.
Now I’ll summarize our sales by region. We had very good growth in the Americas with local currency sales increasing 15% in the quarter, and this remains the strongest economic region for us in the world. In Europe, our local currency sales increased 6% despite a number of European economies having slipped back into recession during the last few months. In Asia, our local currency sales increased 9% as conditions continued to improve in China.Read the rest of this transcript for free on seekingalpha.com