Exhibit 99.1

 

FOR IMMEDIATE RELEASE:	FOR FURTHER INFORMATION:
Wednesday, February 22, 2012	Rich Sheffer (952) 887-3753

 

DONALDSON REPORTS RECORD SECOND QUARTER RESULTS

 

MINNEAPOLIS (February 22, 2012) — Donaldson Company, Inc. (NYSE: DCI) announced its financial results for its fiscal 2012 second quarter. Summarized financial results are as follows (dollars in millions, except per share data):

 

		Three Months Ended												Six Months Ended
		January 31												January 31
		2012				2011				Change				2012				2011				Change
Net sales		$	581			$	537				8	%		$	1,189			$	1,074				11	%
Operating income			75				67				11	%			165				142				16	%
Net earnings			54				45				21	%			122				98				25	%
Diluted EPS		$	0.70			$	0.56				25	%		$	1.60			$	1.24				29	%

 

 

“We are very pleased to reach the midpoint of our year with another strong performance as we established second quarter records in sales, operating margin, and EPS,” said Bill Cook, Chairman, President and CEO. “Sales in our Engine Products segment increased 12 percent as new equipment build rates at our global Off-Road and On-Road OEM Customers remained healthy. Within our Industrial Products segment, sales of our Torit^® dust collectors were strong this quarter. ”

 

“Our operating margin performance was very good at 12.9 percent. Our ongoing Continuous Improvement initiatives helped us again. We also continue to leverage our fixed cost base as our sales grow. The combination of our solid revenue growth, our strong margin performance, and a lower tax rate drove second quarter net income and EPS up 21 percent and 25 percent, respectively.”

 

“We now forecast our full year sales to grow between 7 and 12 percent over last year. Forecasted business conditions in our end markets vary: strong in the Americas, stable in Europe, and improving in China. Currency translation is now projected to be unfavorable during the second half of our year due to the strengthening of the U.S. dollar, with an estimated reduction of our full year EPS estimate of $0.05 from our previous forecast. As a result, we now forecast our FY12 EPS to be between $3.25 and $3.45, which would be another new record, and would be up 13 percent to 20 percent over last year.”

 

 

Financial Statement Discussion

 

The impact of foreign currency translation decreased sales by $4.2 million, or 0.8 percent, during the second quarter and increased sales by $9.2 million, or 0.9 percent, year-to-date, compared to the same periods last year. The impact of foreign currency translation decreased reported net earnings by $0.6 million, or 1.3 percent, during the second quarter and increased reported net earnings by $0.7 million, or 0.8 percent, for the year.

 

Gross margin was 34.6 percent for the quarter and 35.0 percent year-to-date, compared to prior year margins of 35.3 percent and 35.2 percent, respectively. The decrease in the quarter was due to lower absorption of fixed costs resulting from the Thai floods and from fewer shipping days compared to last year’s second quarter. These were partially offset by cost reductions from our ongoing Continuous Improvement initiatives.

 

Operating expenses for the quarter were $126.0 million, up 3.2 percent from $122.1 million last year primarily due to the increased sales volume. As a percent of sales, operating expenses were 21.7 percent compared to last year’s 22.7 percent for the second quarter. Operating expenses year-to-date were $250.7 million, or 21.1 percent of sales, compared to $235.7 million, or 21.9 percent of sales, last year.

 

The effective tax rate for the quarter was 29.6 percent, compared to a prior year rate of 34.4 percent. The prior year’s quarter included a $4.0 million tax charge related to the reorganization of our subsidiary holdings to improve our global business and legal entity structure, partially offset by $0.9 million in tax benefits primarily from the retroactive reinstatement of the Research and Experimentation Credit in the U.S. The year-to-date effective tax rate was 27.3 percent compared to a prior year rate of 30.2 percent.

 

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Donaldson Company, Inc.

February 22, 2012

Page 2

 

 

We did not repurchase any shares during the second quarter, and year-to-date we have repurchased 1,376,000 shares, or 1.8 percent of our diluted outstanding shares, for $73.6 million.

 

FY12 Outlook

 

 

We forecast our FY12 sales to be between $2.45 and $2.55 billion, or up about 7 to 12 percent from the prior year. Our current forecast is based on the Euro at US$1.32 and 76 Yen to the US$, which, in aggregate, is less favorable than our previous currency guidance issued in November.

 

	•	Our full year operating margin is forecast to be 13.7 to 14.5 percent.
	•	Our full year FY12 tax rate is anticipated to be between 27 and 30 percent.
	•	Cash generated by operating activities is projected to be between $250 and $280 million.  Capital spending is now estimated to be approximately $85 million.

 

Engine Products: We expect full year sales to increase 8 to 12 percent, including the impact of foreign currency translation.

 

	•	We anticipate sales to both our Off-Road and On-Road OEM Customers will remain strong in the second half of FY12.  We will continue to benefit from increased market share on our Customers’ new Tier IV equipment platforms.
	•	Sales of our Aftermarket Products are expected to increase moderately based on current utilization rates for both off-road equipment and on-road heavy trucks.  We should also benefit from our continued expansion into the emerging economies and from the increasing number of systems installed in the field with our proprietary filtration systems, such as our PowerCore® products.
	•	We forecast Aerospace and Defense Products’ sales to be level with the prior year as the continued slowdown in military spending is anticipated to be offset by increased commercial aerospace sales.

 

Industrial Products: We forecast full year sales to increase 7 to 11 percent, including the impact of foreign currency translation.

 

	•	Our Industrial Filtration Solutions’ sales are projected to increase 7 to 11 percent and assume a continuing improvement in general manufacturing activity in the U.S., stable conditions in Europe, and improving conditions in Asia.
	•	We anticipate our Gas Turbine Products’ sales to be up 18 to 22 percent due to the recent strengthening in the large turbine power generation market and ongoing strength in the oil and gas market segment.
	•	Special Applications Products’ sales are forecast to be level with the prior year as growth in our membrane and venting product sales should offset the reduction in our disk drive filter sales related to the Thai floods last fall.

 

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Donaldson Company, Inc.

February 22, 2012

Page 3

 

 

About Donaldson Company

 

Donaldson is a leading worldwide provider of filtration systems that improve people’s lives, enhance our Customers’ equipment performance, and protect our environment. We are a technology-driven Company committed to satisfying our Customers’ needs for filtration solutions through innovative research and development, application expertise, and global presence. Our nearly 13,000 employees contribute to the Company’s success by supporting our Customers at our more than 100 sales, manufacturing, and distribution locations around the world.

 

Donaldson is a member of the S&P MidCap 400 and Russell 1000 indices, and our shares trade on the NYSE under the symbol DCI. Additional information is available at www.donaldson.com.

 

 

SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995

 

The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) and is making this cautionary statement in connection with such safe harbor legislation. This announcement contains forward-looking statements, including forecasts, plans, and projections relating to our business and financial performance and global economic conditions, which involve uncertainties that could materially impact results.

 

The Company wishes to caution investors that any forward-looking statements are subject to uncertainties and other risk factors that could cause actual results to differ materially from such statements, including but not limited to risks associated with: world economic factors and the ongoing economic uncertainty, reduced demand for hard disk drive products with the increased use of flash memory, the potential for some Customers to increase their reliance on their own filtration capabilities, currency fluctuations, commodity prices, political factors, the Company’s international operations, highly competitive markets, governmental laws and regulations including the impact of various economic stimulus and financial reform measures, the implementation of our new information technology systems, potential global events resulting in market instability including financial bailouts and defaults of sovereign nations, military and terrorist activities, health outbreaks, natural disasters, and other factors included in our Annual and Quarterly Reports. We undertake no obligation to publicly update or revise any forward-looking statements.

 

 

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 4

 

 

CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS

DONALDSON COMPANY, INC. AND SUBSIDIARIES

(Thousands of dollars, except share and per share amounts)

(Unaudited)

 

		Three Months Ended January 31								Six Months Ended January 31
		2012				2011				2012				2011
Net sales		$	580,883			$	537,105			$	1,189,178			$	1,074,014
Cost of sales			380,066				347,562				773,427				696,381
Gross margin			200,817				189,543				415,751				377,633
Operating expenses			126,049				122,102				250,656				235,689
Operating income			74,768				67,441				165,095				141,944
Other income, net			(4,550	)			(3,502	)			(9,410	)			(4,609	)
Interest expense			2,899				2,936				6,069				6,589
Earnings before income taxes			76,419				68,007				168,436				139,964
Income taxes			22,598				23,428				46,062				42,251
Net earnings		$	53,821			$	44,579			$	122,374			$	97,713
Weighted average shares outstanding*			75,052,805				77,580,064				75,154,873				77,375,086
Diluted shares outstanding*			76,412,785				78,977,509				76,480,673				78,766,895
Net earnings per share*		$	0.72			$	0.57			$	1.63			$	1.26
Net earnings per share assuming dilution*		$	0.70			$	0.56			$	1.60			$	1.24
Dividends paid per share*		$	0.150			$	0.130			$	0.300			$	0.255

* Earnings and dividends declared per share and weighted average shares outstanding are presented before the effect of a 100 percent stock dividend declared on January 27, 2012, to be distributed on March 23, 2012 to shareholders of record on March 2, 2012.

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 5

 

 

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars)

(Unaudited)

 

		January 31 2012				July 31 2011
ASSETS
Cash, cash equivalents and short-term investments		$	272,315			$	273,494
Accounts receivable – net			408,462				445,700
Inventories – net			270,212				271,476
Prepaids and other current assets			78,697				75,912
Total current assets			1,029,686				1,066,582
Other assets and deferred taxes			268,746				268,009
Property, plant and equipment – net			382,957				391,502
Total assets		$	1,681,389			$	1,726,093
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable		$	190,076			$	215,918
Employee compensation and other liabilities			176,030				219,326
Short-term borrowings			92,728				13,129
Current maturity long-term debt			2,356				47,871
Total current liabilities			461,190				496,244
Long-term debt			205,217				205,748
Other long-term liabilities			99,569				89,390
Total liabilities			765,976				791,382
Equity			915,413				934,711
Total liabilities and equity		$	1,681,389			$	1,726,093

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 6

 

 

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

 

		Six Months Ended
		January 31
		2012				2011
OPERATING ACTIVITIES
Net earnings		$	122,374			$	97,713
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			30,896				30,478
Changes in operating assets and liabilities			(43,485	)			(19,947	)
Tax benefit of equity plans			(7,576	)			(7,445	)
Stock compensation plan expense			6,440				6,089
Other, net			(6,451	)			(13,828	)
Net cash provided by operating activities			102,198				93,060
INVESTING ACTIVITIES
Net expenditures on property and equipment			(36,349	)			(24,051	)
Purchases of short-term investments			(93,455	)			(66,494	)
Acquisitions and divestitures, net			—				3,613
Net cash used in investing activities			(129,804	)			(86,932	)
FINANCING ACTIVITIES
Purchase of treasury stock			(73,558	)			(6,491	)
Net change in debt and short-term borrowings			33,452				(21,254	)
Dividends paid			(22,342	)			(19,542	)
Tax benefit of equity plans			7,576				7,445
Exercise of stock options			9,791				12,113
Net cash used in financing activities			(45,081	)			(27,729	)
Effect of exchange rate changes on cash			(19,877	)			9,236
Decrease in cash and cash equivalents			(92,564	)			(12,365	)
Cash and cash equivalents – beginning of year			273,494				232,000
Cash and cash equivalents – end of period		$	180,930			$	219,635

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 7

 

 

SEGMENT DETAIL

(Thousands of dollars)

(Unaudited)

 

		Engine Products				Industrial Products				Corporate & Unallocated				Total Company
3 Months Ended January 31, 2012:
Net sales		$	370,834			$	210,049				—			$	580,883
Earnings before income taxes			48,418				30,597				(2,596	)			76,419
3 Months Ended January 31, 2011:
Net sales		$	331,122			$	205,983				—			$	537,105
Earnings before income taxes			44,203				29,127				(5,323	)			68,007
6 Months Ended January 31, 2012:
Net sales		$	764,559			$	424,619				—			$	1,189,178
Earnings before income taxes			108,296				64,896				(4,756	)			168,436
6 Months Ended January 31, 2011:
Net sales		$	664,891			$	409,123				—			$	1,074,014
Earnings before income taxes			92,654				59,162				(11,852	)			139,964

 

 

NET SALES BY PRODUCT

(Thousands of dollars)

(Unaudited)

 

		Three Months Ended								Six Months Ended
		January 31								January 31
		2012				2011				2012				2011
Engine Products segment:
Off-Road Products		$	87,035			$	73,852			$	181,143			$	146,498
On-Road Products			39,376				28,747				82,001				57,802
Aftermarket Products			214,070				199,891				440,967				401,758
Retrofit Emissions Products			4,651				4,908				9,288				8,255
Aerospace and Defense Products			25,702				23,724				51,160				50,578
Total Engine Products segment		$	370,834			$	331,122			$	764,559			$	664,891
Industrial Products segment:
Industrial Filtration Solutions Products		$	132,041			$	123,430			$	265,440			$	242,783
Gas Turbine Products			37,011				34,871				72,592				70,376
Special Applications Products			40,997				47,682				86,587				95,964
Total Industrial Products segment		$	210,049			$	205,983			$	424,619			$	409,123
Total Company		$	580,883			$	537,105			$	1,189,178			$	1,074,014

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 8

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Thousands of dollars, except per share amounts)

(Unaudited)

 

		Three Months Ended								Six Months Ended
		January 31								January 31
		2012				2011				2012				2011
Free cash flow		$	26,654			$	16,294			$	65,849			$	69,009
Net capital expenditures			17,858				14,003				36,349				24,051
Net cash provided by operating activities		$	44,512			$	30,297			$	102,198			$	93,060
EBITDA		$	93,530			$	85,911			$	203,492			$	175,919
Income taxes			(22,598	)			(23,428	)			(46,062	)			(42,251	)
Interest expense (net)			(1,789	)			(2,344	)			(4,160	)			(5,477	)
Depreciation and  amortization			(15,322	)			(15,560	)			(30,896	)			(30,478	)
Net earnings		$	53,821			$	44,579			$	122,374			$	97,713
Net sales, excluding foreign currency translation		$	585,085			$	540,594			$	1,179,960			$	1,081,230
Foreign currency translation			(4,202	)			(3,489	)			9,218				(7,216	)
Net sales		$	580,883			$	537,105			$	1,189,178			$	1,074,014
Net earnings, excluding foreign currency translation		$	54,408			$	44,417			$	121,630			$	97,432
Foreign currency translation			(587	)			162				744				281
Net earnings		$	53,821			$	44,579			$	122,374			$	97,713

 

 

 

 

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Donaldson Company, Inc.

February 22, 2012

Page 9

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED)

(Thousands of dollars, except per share amounts)

(Unaudited)

 

		Three Months Ended								Six Months Ended
		January 31								January 31
		2012				2011				2012				2011
Net earnings, excluding special items		$	53,821			$	44,579			$	122,374			$	98,279
Restructuring charges, net of tax			—				—				—				(566	)
Net earnings		$	53,821			$	44,579			$	122,374			$	97,713
Net earnings per share assuming dilution, excluding special items		$	0.70			$	0.56			$	1.60			$	1.25
Restructuring charges per share, net of tax			—				—				—				(0.01	)
Net earnings per share assuming dilution		$	0.70			$	0.56			$	1.60			$	1.24

 

 

Although free cash flow, EBITDA, net sales excluding foreign currency translation, net earnings excluding foreign currency translation, net earnings excluding restructuring charges and net earnings per share assuming dilution excluding restructuring charges are not measures of financial performance under GAAP, the Company believes they are useful in understanding its financial results. Free cash flow is a commonly used measure of a company’s ability to generate cash in excess of its operating needs. EBITDA is a commonly used measure of operating earnings less non-cash expenses. Both net sales and net earnings excluding foreign currency translation provide a comparable measure for understanding the operating results of the company’s foreign entities excluding the impact of foreign exchange. Both net earnings excluding restructuring charges and earnings per share excluding restructuring charges provide a comparable measure for understanding the results of the Company as compared to prior periods. A shortcoming of these financial measures is that they do not reflect the company’s actual results under GAAP. Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.

 

 

 

 

 

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