DONALDSON Co INC

Previous wording

Founded in 1915, Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets. Donaldson’s diverse, skilled employees at over 150 locations, 75 of which are manufacturing and/or distribution centers, on six continents, partner with customers - from small business owners to the world’s largest original equipment manufacturer (OEM) brands - to solve complex filtration challenges. Customers choose Donaldson’s filtration solutions due to their stringent performance requirements and need for reliability.

Current wording

Founded in 1915, Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets. Donaldson’s diverse and skilled employees at approximately 150 locations on six continents, 77 of which are manufacturing and/or distribution centers, partner with customers - from small business owners to the world’s largest original equipment manufacturer (OEM) brands - to solve complex filtration challenges. Customers choose Donaldson’s filtration solutions due to their stringent performance requirements and need for reliability.

Previous wording

The Industrial Solutions segment is organized based on product type and consists of the Industrial Air Filtration, Industrial Gasses, Industrial Hydraulics, Power Generation and Aerospace and Defense business units. Within our Industrial Solutions portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gasses and Industrial Hydraulics products consist of dust, fume andmist collectors, compressed air and industrial gasses purification systems, hydraulic and lubricated rotating filtration applicationsas well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.

Current wording

The Industrial Solutions segment is organized based on product type and consists of Industrial Air Filtration, Industrial Gases, Industrial Hydraulics, Power Generation and Aerospace and Defense products. These products are further organized by the Industrial Filtration Solutions and Aerospace and Defense business units. Within our industrial portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gases and Industrial Hydraulics products consist of dust, fume andmist collectors, compressed air and industrial gases purification systems, hydraulic and lubricated rotating filtration applicationsas well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.

Previous wording

The Life Sciences segment is organized by end market, including the Bioprocessing, Food and Beverage, Medical Device, Vehicle Electrification, Microelectronics and Disk Drive business units. Our products include gas and liquid filtration bioprocessing equipment (including bioreactors, fermenters and filtration skids), bioprocessing consumables (including membrane chromatography devices, reagents and filters) and specialized air and gas filtration systems for hard disk drive, semiconductor and electric vehicle applications. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.

Current wording

The Life Sciences segment is organized by end market and consists of the Bioprocessing Equipment and Consumables, Food and Beverage, Vehicle Electrification and Medical Device, Microelectronics and Disk Drive markets. Within these markets, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.

Previous wording

Net sales, generally disaggregated by location where the customer’s order was received, were as follows (in millions):

Current wording

Net sales, disaggregated by location where the customer’s order was received, were as follows (in millions):

Previous wording

Net sales for the three months ended April 30, 2024 increased $52.2 million, or 6.0%, from the three months ended April 30, 2023, reflecting higher sales in the Mobile Solutions segment of $30.2 million, or 5.5% growth, the Life Sciences segment of $14.4 million, or 24.2% growth and the Industrial Solutions segment of $7.6 million, or 2.9% growth. Foreign currency translation decreased net sales by $7.1 million compared to the three months ended April 30, 2023, reflecting decreases in the Mobile Solutions, Industrial Solutions and Life Sciences segments of $4.6 million, $1.1 million and $1.4 million, respectively. During the three months ended April 30, 2024, the Company’s net sales increase was driven primarily by volume increases due to strong underlying market growth and higher pricing.

Current wording

Net sales for the three months ended October 31, 2024 increased $53.8 million, or 6.4%, from the three months ended October 31, 2023, reflecting higher sales in the Mobile Solutions segment of $32.4 million, or 6.0% growth, the Industrial Solutions segment of $11.4 million, or 4.6% growth, and the Life Sciences segment of $10.0 million, or 16.6% growth. Foreign currency translation increased net sales by $7.1 million compared to the three months ended October 31, 2023, reflecting increases in the Mobile Solutions, Industrial Solutions and Life Sciences segments of $3.3 million, $2.2 million and $1.6 million, respectively. During the three months ended October 31, 2024, the Company’s net sales increase was driven primarily by volume increases primarily due to strong underlying market growth.

Previous wording

Gross margin as a percentage of net sales for the nine months ended April 30, 2024 was 35.4% compared with 33.7% for the nine months ended April 30, 2023. The increase in gross margin as a percentage of net sales was primarily driven by higher volume and pricing actions.

Current wording

Gross margin as a percentage of net sales for the three months ended October 31, 2024 was 35.5%, a decrease from 35.6% for the three months ended October 31, 2023. The decrease in gross margin as a percentage of net sales was primarily due to restructuring expenses of $1.1 million associated with a continuation of the global footprint and cost optimization actions.

Previous wording

Selling, general and administrative expenses for the three months ended April 30, 2024 were $161.7 million, or 17.4% of net sales, compared with $145.8 million, or 16.7% of net sales, for the three months ended April 30, 2023, an increase of $15.9 million, or 10.9%. The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to increased headcount and incremental expenses associated with investments in acquired Life Sciences businesses.

Current wording

Selling, general and administrative expenses for the three months ended October 31, 2024 were $166.1 million, or 18.5% of net sales, compared with $155.0 million, or 18.3% of net sales, for the three months ended October 31, 2023, an increase of $11.1 million, or 7.2%. The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to restructuring expenses of $2.2 million associated with a continuation of the global footprint and cost optimization actions.

Previous wording

Other income, net for the nine months ended April 30, 2024 was $14.1 million, compared with other income, net of $6.1 million for the nine months ended April 30, 2023, an increase of $8.0 million, which was driven primarily by lower foreign currency related losses in the current year and higher income from joint ventures.

Current wording

Other income, net for the three months ended October 31, 2024 was $5.2 million, compared with other income, net of $3.8 million for the three months ended October 31, 2023, an increase of $1.4 million, which was driven primarily by higher income from joint ventures.

Previous wording

The effective tax rate was 21.2% and 22.9% for the three months ended April 30, 2024 and 2023, respectively. The lower effective tax rate was primarily due to an increase in excess tax benefits on stock-based compensation.

Current wording

The effective tax rate was 24.2% and 25.1% for the three months ended October 31, 2024 and 2023, respectively. The lower effective tax rate was primarily due to an increase in discrete tax benefits.

Previous wording

Net sales of Aftermarket increased $43.9 million, driven by market share gains, destocking in the prior year period and pricing benefits. Net sales of Off-Road decreased $11.4 million, primarily due to weak agriculture end market conditions.

Current wording

Net sales of Aftermarket increased $43.7 million, primarily due to volume increases driven by favorable market conditions, inventory destocking in the prior year and market share gains. Net sales of On-Road and Off-Road decreased $5.7 million and $5.6 million, respectively, primarily due to a decline in global equipment production driven by weak end market conditions, including agriculture and transportation.

Previous wording

Earnings before income taxes for the Mobile Solutions segment for the three months ended April 30, 2024 were $107.9 million, or 18.4% of net sales, an increase from 15.0% of net sales for the three months ended April 30, 2023. The increase was driven by higher volume, favorable product mix and pricing actions.

Current wording

Earnings before income taxes for the Mobile Solutions segment for the three months ended October 31, 2024 were $104.7 million, or 18.3% of net sales, an increase from 17.1% of net sales for the three months ended October 31, 2023. The increase was driven by higher volume, favorable product mix related to the sale of replacement parts and select lower input costs.

Previous wording

Net sales of IFS increased $32.6 million, reflecting higher sales volume in power generation and industrial dust collection from strong demand in most geographies. Net sales of Aerospace and Defense increased by $8.5 million due to ongoing strength in the Defense end markets.

Current wording

Net sales of Aerospace and Defense increased by $9.6 million due to ongoing strength in the aerospace and defense end markets. Net sales of IFS increased $1.8 million, reflecting higher sales volume in power generation driven by the timing of projects.

Previous wording

Earnings before income taxes for the Industrial Solutions segment for the three months ended April 30, 2024 were $50.3 million, or 18.7% of net sales, a decrease from 18.8% of net sales for the three months ended April 30, 2023.

Current wording

Earnings before income taxes for the Industrial Solutions segment for the three months ended October 31, 2024 were $41.0 million, or 15.9% of net sales, a decrease from 17.6% of net sales for the three months ended October 31, 2023. The decrease was driven by higher operating expense from investments for future growth and the impact of negative product mix.

Previous wording

Losses before income taxes for the Life Sciences segment for the nine months ended April 30, 2024 were $9.5 million, or 4.8% of net sales, a decrease from earnings before income taxes of 9.5% of net sales for the nine months ended April 30, 2023. The decrease was driven by the expected impact from investments made to scale up the Company’s recently-acquired businesses.

Current wording

Losses before income taxes for the Life Sciences segment for the three months ended October 31, 2024 were $5.3 million, or 7.6% of net sales, an increase from losses before income taxes of 7.0% of net sales for the three months ended October 31, 2023. The increase was driven by the expected impact from investments made in the Company’s recently-acquired businesses.

Previous wording

Cash provided by operating activities for the nine months ended April 30, 2024 was $366.5 million, compared with $353.7 million for the nine months ended April 30, 2023, an increase of $12.8 million. The increase in cash provided by operating activities was primarily driven by higher earnings.

Current wording

Cash provided by operating activities for the three months ended October 31, 2024 was $72.9 million, compared with $138.0 million for the three months ended October 31, 2023, a decrease of $65.1 million. The decrease in cash provided by operating activities was primarily driven by an increase in working capital requirements during the current quarter, including purchasing additional inventory to increase on-time deliveries, partially offset by higher earnings in the current quarter.

Previous wording

Cash used in financing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net of borrowing activity and proceeds from the exercise of stock options. Cash used in financing activities for the nine months ended April 30, 2024 was $257.5 million, compared with $204.1 million for the nine months ended April 30, 2023, an increase of $53.4 million. The increase was primarily driven by a net debt repayment of $109.1 million in the current year compared to $55.0 million in the prior year.

Current wording

Cash provided by financing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net of borrowing activity and proceeds from the exercise of stock options. Cash provided by financing activities for the three months ended October 31, 2024 was $9.8 million, compared with cash used in financing activities of $78.9 million for the three months ended October 31, 2023, an increase of $88.7 million. The increase was primarily driven by a debt repayment of $73.8 in the first quarter of the prior year.

Previous wording

To determine the level of dividend and share repurchases, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. Dividends paid for the nine months ended April 30, 2024 and 2023 were $90.3 million and $84.1 million, respectively. Share repurchases for the nine months ended April 30, 2024 and 2023 were $113.8 million and $119.3 million, respectively.

Current wording

To determine the level of dividend and share repurchases, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. Dividends paid for the three months ended October 31, 2024 and 2023 were $32.4 million and $30.2 million, respectively. Share repurchases for the three months ended October 31, 2024 and 2023 were $74.4 million and $53.3 million, respectively.

Previous wording

Additional sources of liquidity are existing cash and available credit facilities. Cash and cash equivalents as of April 30, 2024 was $223.7 million, compared with $187.1 million as of July 31, 2023. The Company has capacity of $573.4 million available for further borrowing under existing credit facilities as of April 30, 2024, which includes $382.5 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.

Current wording

Additional sources of liquidity are existing cash and available credit facilities. Cash and cash equivalents as of October 31, 2024 was $221.2 million, compared with $232.7 million as of July 31, 2024. The Company has capacity of $501.9 million available for further borrowing under existing credit facilities as of October 31, 2024, which includes $327.0 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.

Previous wording

As of April 30, 2024, total debt, including short-term borrowings and long-term debt, represented 27.3% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 33.2% as of July 31, 2023. As of April 30, 2024, the Company was in compliance with its financial covenants.

Current wording

As of October 31, 2024, total debt, including short-term borrowings and long-term debt, represented 29.4% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 26.5% as of July 31, 2024. As of October 31, 2024, the Company was in compliance with its financial covenants.

Previous wording

Long-term debt outstanding was $506.8 million as of April 30, 2024, compared with $621.6 million as of July 31, 2023, a decrease of $114.8 million, primarily due to a $125.0 million payment of maturing long-term debt during the three months ended April 30, 2024. As of April 30, 2024, there was $382.5 million available and $110.0 million outstanding on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.

Current wording

Long-term debt outstanding was $563.6 million as of October 31, 2024, compared with $508.4 million as of July 31, 2024, an increase of $55.2 million, primarily due to proceeds from long-term debt received during the three months ended October 31, 2024. As of October 31, 2024, there was $327.0 million available and $165.0 million outstanding on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.

Previous wording

In order to help measure and analyze the impact of working capital management, the Company reviews its cash conversion cycle. The Company calculates days sales outstanding as the average accounts receivable, net for the quarter, divided by net sales for the quarter multiplied by the number of days in the quarter. The Company calculates days inventory outstanding as the average inventories, net for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter and calculates inventory turns as the cost of sales for the quarter, annualized by the ratio of the number of days in the year to the number of days in the quarter, divided by the average inventories, net for the quarter. The Company calculates days payable outstanding as the average accounts payable for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter.

Current wording

In order to help measure and analyze the impact of working capital management, the Company calculates days sales outstanding as the average accounts receivable, net for the quarter, divided by net sales for the quarter multiplied by the number of days in the quarter. The Company calculates days inventory outstanding as the average inventories, net for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter. The Company calculates days payable outstanding as the average accounts payable for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter. The Company calculates net cash cycle as the sum of days sales outstanding and days inventory outstanding, less days payables outstanding.