Donaldson Company's CEO Discusses F4Q2012 Results - Earnings Call Transcript

Donaldson Company Inc. (DCI)

Q4 2012 Earnings Call

August 27, 2012 10:00 am ET


William Cook – Chairman, President, Chief Executive Officer

James Shaw – Vice President, Chief Financial Officer

Richard Sheffer – Director, Investor Relations


Kevin Maczka – BB&T Capital Markets

Charlie Brady – BMO Capital Markets

Hamzah Mazari – Credit Suisse

Eli Lustgarten - Longbow Securities

Brian Drab – William Blair

Laurence Alexander – Jefferies & Co.

Brian Sponheimer – Gabelli & Co.

Richard Eastman – Robert W. Baird

Gary Farber – CL King & Associates



Good morning ladies and gentlemen and thank you for standing by, and welcome to the Donaldson’s Fourth Quarter Fiscal Year 2012 conference call. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question and answer session and instructions will be given at that time. Should anyone require assistance on the call today, please press the star followed by the zero. And as a reminder, this call is being recorded today, August 27, 2012.

I would now like to turn the call over to Rick Sheffer. Please go ahead, sir.

Richard Sheffer

Thank you Craig, and welcome everyone to Donaldson’s Fiscal 2012 Fourth Quarter conference call and webcast. Following this brief introduction, Bill Cook, our Chairman, President and CEO, and Jim Shaw, our Vice President and CFO will review our record fourth quarter and full-year earnings and our initial outlook for fiscal ’13.

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 set fourth quarter records for sales, operating margin, net earnings, and earnings per share. This very successful conclusion to our fiscal ’12 also resulted in record sales and profits for the full year. Our fiscal ’12 performance means that we have now delivered earnings records in 21 of the last 23 years.

Now I’d like to take a few minutes to summarize our results for the fourth quarter. Our fourth quarter sales were $657 million, up 5% over last year. Excluding the negative impact of foreign currency translation due to the stronger U.S. dollar, we had organic sales growth of 11%, which we are very, very pleased with. This combination of our 11% organic sales growth and a 15.1% operating margin helped to deliver an increase in pre-tax income of 13% and an EPS increase of 12%, resulting in a record $0.43 per share.

As you know, we have two reporting segments and I will now cover highlights for each. First in our engine product segment, excluding the impact of foreign exchange, our local currency sales in the quarter increased 6% over last year. The primary drivers of this increase were our OEM businesses – off-road and on-road – which were up 11 and 6% respectively. Our off-road product sales were up 16% in the Americas and 11% in Europe as the agricultural equipment markets we serve remain strong globally. This offset slower growth in Asia where excess inventory of mining and construction equipment in China has impacted the overall Asian off-road equipment market.

The 6% increase in our on-road product sales was primarily due to higher North American new heavy truck build rates at our customers. Class A heavy truck builds in North America were 76,000 in our last fiscal quarter, a 24% increase over last year. Partially offsetting this was a 5% decrease in new truck sales in Japan. Now we also had help from our engine aftermarket business as our replacement filter sales were up 6% globally. Replacement filter sales in the Americas were up 10% with solid growth in sales to our independent dealers and distributors. The strong growth in the Americas offset 1% growth in Europe and a 5% decrease in Asia mainly due to the continuing slow recovery in China.

As we have discussed in previous calls, one key area of focus in our aftermarket business is continuing to expand our distribution networks and product line. We added another 126 distributors since our last call with the majority of these latest additions in Asia, Latin America and the U.S. Also, we’ve added nearly 500 part numbers to our product offering since our last call, with the majority of these adds in our emerging market businesses.

Now switching to our industrial product segment, our local currency sales increased 20%. Our largest industrial product group, industrial filtration solutions, grew local currency sales by 17%. Their sales growth was good in both the U.S. and Europe for both new Torit dust collection equipment and the replacement filters for those systems already installed in the field. We also had a very large project ship in South Africa this quarter. Sales in gas turbine were up 51% in the quarter driven mainly by strong shipments for new power generation systems. And finally, sales of our special application products increased 3% with sales growth in our venting, disc driver filters, and membrane product lines.

Now I’ll quickly summarize our sales by region. We again had very good growth in the Americas with local currency sales increasing 9% in the quarter. In Europe, our local currency sales increased 11% with our gas turbine, off-road and industrial filtration businesses all posting double-digit percent year-over-year sales increases; and in Asia, strong gas turbine sales drove an overall local currency sales increase of 7% for the region in the quarter.

Read the rest of this transcript for free on

If you liked this article you might like

Analysts' Actions -- Gogo, iRobot, Eli Lilly, VMware and More

Analysts' Actions -- Gogo, iRobot, Eli Lilly, VMware and More

Trade These 3 Volatility Breakout Stocks

Trade These 3 Volatility Breakout Stocks

Dividend Watch: 3 Stocks Going Ex-Dividend Tomorrow: CHW, SJI, DCI

Dividend Watch: 3 Stocks Going Ex-Dividend Tomorrow: CHW, SJI, DCI

Donaldson (DCI) Stock Surges on Q3 Earnings Beat

Donaldson (DCI) Stock Surges on Q3 Earnings Beat

Donaldson (DCI) Is Strong On High Volume Today

Donaldson (DCI) Is Strong On High Volume Today