EPS of $0.81 increased by 15.5% from previous year
Gross margin of 34.8%
Net income of 98.70M
"Backlogs remain strong and give us confidence in our outlook through the balance of the year." - Tod Carpenter
Donaldson Company Inc (DCI) QQ2 2024 Results: Diversified Filtration Leader Delivers 6% Revenue Growth, Margin Expansion, and Life Sciences Upside
Executive Summary
Donaldson Company reported a solid second quarter of fiscal 2024 (QQ2 2024), with a diversified mix across Mobile Solutions, Industrial Solutions, and Life Sciences contributing to a 6% year-over-year revenue increase to $876.7 million. The quarter featured meaningful gross margin expansion (up 70 bps year over year to 35.2%), a robust operating cadence, and continued investment in growth initiatives, including Life Sciences acquisitions and R&D. Management highlighted strong backlog, ongoing pricing discipline, and a view toward record full-year results, supported by pricing tailwinds, mix benefits, and cost deflation in freight and select materials. EPS of $0.81 rose 8% year over year, while Life Sciences posted an approximate breakeven pretax result amid continued investment to scale acquired platforms.
The company reaffirmed and modestly raised its 2024 outlook, guiding to revenue growth of 3%–7% and operating margins of 15.0%–15.4% (midpoint up ~60 bps YoY). Full-year EPS was raised to $3.24–$3.32, with cash conversion and capital allocation remains focused on growth investments, dividends, and buybacks. In sum, the quarter reflects the benefits of Donaldson's diversified portfolio, continued market share gains in Aftermarket and Dust Collection, and the execution of a multi-year Life Sciences expansion that could underpin higher-margin growth in the medium term. Key near-term risks include agricultural market softness, China macro headwinds, and persistent input cost inflation in pockets of the supply chain; the company appears to be navigating these with pricing discipline, backlog execution, and portfolio diversification.
Key Performance Indicators
Revenue
876.70M
QoQ: 3.59% | YoY:5.84%
Gross Profit
304.80M
34.77% margin
QoQ: 1.30% | YoY:7.17%
Operating Income
129.70M
QoQ: 4.09% | YoY:11.52%
Net Income
98.70M
QoQ: 7.17% | YoY:14.77%
EPS
0.82
QoQ: 7.89% | YoY:15.49%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $876.7 million, up 6% YoY; QoQ not provided in detail, but the company notes a 2% pricing tailwind and volume-driven growth. YoY revenue growth driven by higher volumes and pricing; currency was a marginal tailwind.
Gross margin: 35.2% (35.2%), up 70 basis points YoY, aided by pricing benefits and freight/select cost deflation.
Operating income: $129.7 million; operating margin 14.8% (vs. 15.2% guidance midpoint implied by a 60 bps improvement YoY). YoY operating income rose ~3% despite a higher expense base from Life Sciences investments.
Net income and EPS: Net income $98.7 million; net margin 11.3%; EPS $0.81 (diluted $0.81), up 8% YoY.
Segment profitability: Mobile Solutions pretax margin 18.0% (up 300 bps YoY); Industrial Solutions pretax margin 18.0% (down 80 bps YoY due to mix to lower-margin products); Life Sciences pretax loss ≈$6 million (including ≈$15 million headwind from acquisitions).
Financial Highlights
Financial highlights and directional context:
- Revenue: $876.7 million, up 6% YoY; QoQ not provided in detail, but the company notes a 2% pricing tailwind and volume-driven growth. YoY revenue growth driven by higher volumes and pricing; currency was a marginal tailwind.
- Gross margin: 35.2% (35.2%), up 70 basis points YoY, aided by pricing benefits and freight/select cost deflation.
- Operating income: $129.7 million; operating margin 14.8% (vs. 15.2% guidance midpoint implied by a 60 bps improvement YoY). YoY operating income rose ~3% despite a higher expense base from Life Sciences investments.
- Net income and EPS: Net income $98.7 million; net margin 11.3%; EPS $0.81 (diluted $0.81), up 8% YoY.
- Segment profitability: Mobile Solutions pretax margin 18.0% (up 300 bps YoY); Industrial Solutions pretax margin 18.0% (down 80 bps YoY due to mix to lower-margin products); Life Sciences pretax loss ≈$6 million (including ≈$15 million headwind from acquisitions).
- Cash flow and liquidity: Operating cash flow $87.0 million; free cash flow $65.7 million; cash at period end $193.8 million; net debt to EBITDA 0.7x; capex $22 million for growth initiatives; dividends paid $30 million and share repurchases $33 million in the quarter; total cash returned to shareholders ≈$63 million.
- Balance sheet and leverage: Total assets $2.7835 billion; total liabilities $1.4077 billion; total stockholders’ equity $1.3758 billion; total debt $614.1 million; net debt $420.3 million.
- Outlook and capital allocation: 2024 full-year guidance unchanged at 3%–7% revenue growth; operating margin target raised to 15.0%–15.4%; EPS guidance increased to $3.24–$3.32; capex outlook tightened to $95 million–$110 million; cash conversion target 95%–105%; Life Sciences ramp expected to contribute meaningfully in H2; ongoing M&A activity focused on Life Sciences and industrial services.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
876.70M
5.84%
3.59%
Gross Profit
304.80M
7.17%
1.30%
Operating Income
129.70M
11.52%
4.09%
Net Income
98.70M
14.77%
7.17%
EPS
0.82
15.49%
7.89%
Key Financial Ratios
currentRatio
1.47
grossProfitMargin
34.8%
operatingProfitMargin
14.8%
netProfitMargin
11.3%
returnOnAssets
3.55%
returnOnEquity
7.17%
debtEquityRatio
0.45
operatingCashFlowPerShare
$0.72
freeCashFlowPerShare
$0.55
dividendPayoutRatio
30.5%
priceToBookRatio
5.66
priceEarningsRatio
19.71
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ2 2024 earnings call:
- Strategy and growth engine: Tod Carpenter emphasized a diversified portfolio that contributed to a strong quarter, with all three operating segments delivering sales growth and backlog support for the outlook. Quote: “Backlogs remain strong and give us confidence in our outlook through the balance of the year.”
- Mobile Solutions strength and margins: The segment delivered a pretax margin of 18.0% driven by mix, pricing, and freight/material cost deflation; aftermarket gains aided share gains and price realization. Quote: “Our Aftermarket… is driving market share gains and elevated equipment utilization.”
- Life Sciences: Ongoing investments in Life Sciences acquisitions are scaling; margins in Life Sciences were effectively breakeven in the quarter as the company scales pre-revenue/higher-cost platforms, with an explicit ramp in the second half. Management noted a pipeline of >100 therapies across cell and gene therapy, vaccines, and bioprocessing. Quote: “We remain on track to deliver record sales, record operating margin and record earnings in fiscal 2024.”
- Guidance and margin trajectory: The company reaffirmed 3%–7% revenue growth and raised the annual operating margin target to 15.0%–15.4%, with gross margin expansion as the driver. Quote: “We are increasing total company operating margin guidance to a record level of between 15.0% and 15.4%.”
- Capital allocation and balance sheet discipline: Donaldson returned $63 million to shareholders (dividends and buybacks) and maintained a conservative leverage profile (net debt/EBITDA of 0.7x). CFO Scott Robinson noted OpEx rising mainly due to Life Sciences acquisitions but expects OpEx to normalize as revenues scale. Quote: “We ended the quarter with a net debt-to-EBITDA ratio of 0.7x.”
Backlogs remain strong and give us confidence in our outlook through the balance of the year.
— Tod Carpenter
Gross margin was 35.2%, a 70 basis point improvement versus prior year.
— Scott Robinson
Forward Guidance
Outlook and risk assessment:
- Revenue and margins: The company maintains a baseline 3%–7% revenue growth for the full year with a gross margin expansion expected to sustain a 15.0%–15.4% operating margin, implying ongoing leverage from pricing and mix while investing for future growth. EPS guided to $3.24–$3.32, up about 8% at the midpoint versus prior-year adjusted results. Management expects second-half gross margins to approximate first-half levels, with SG&A leverage improving as Life Sciences scales.
- Life Sciences ramp: A notable portion of the second-half boost comes from Life Sciences acquisitions, including Solaris and other assets, with a significant back-half contribution to revenue and backlogs. The ramp is expected to be lumpy (e.g., large bioreactor programs) but should trend toward profitability as the acquisitions scale.
- Balance sheet and capital deployment: Cash conversion expected to exceed historical averages (95%–105%), with capex conservatively guided at $95–$110 million, weighted toward growth (capacity, products, and technologies) across all segments. The company will continue to pursue inorganic opportunities in Life Sciences and industrial services in line with its Investor Day targets.
- Key factors investors should monitor: (1) Life Sciences revenue mix and profitability trajectory as acquisitions scale; (2) lifecycle of the ag/China end-market weakness and its impact on Mobile Solutions and On-Road/Off-Road segments; (3) commodity and freight cost pressures and their impact on gross/margins; (4) backlog evolution and the timing of large Life Sciences programs; (5) progress on integration of acquisitions and R&D productivity gains.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DCI Focus
34.77%
14.80%
7.17%
19.71%
FELE
36.80%
14.60%
4.84%
18.33%
CR
38.50%
16.60%
4.86%
28.57%
IEX
45.40%
23.10%
3.87%
26.24%
GGG
54.40%
29.20%
5.50%
25.20%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Positive longer-term given Donaldson's leadership in filtration technology, diversified revenue streams, and a meaningful Life Sciences growth trajectory. The QQ2 2024 results demonstrate execution across segments, backlog strength, and a path to higher profitability through gross margin expansion and disciplined investment in growth initiatives. Near term, investors should monitor Life Sciences ramp timing, Ag/China market sensitivity, and integration milestones for acquired businesses. Valuation sits in line with peers on multiple metrics (e.g., EV/EBITDA, P/E), with the potential for multiple expansion if Life Sciences growth translates into sustainable margin uplift and stronger free cash flow generation. Key catalysts include faster Life Sciences revenue ramp, successful monetization of new filtration technologies, and ongoing share repurchase activity alongside expanding dividends.
Key Investment Factors
Growth Potential
Diversified, higher-margin growth through Life Sciences expansion (bioprocessing, consumables, and equipment), continued aftermarket share gains in Mobile Solutions, and stronger IFS/Dust Collection and Power Generation opportunities within Industrial Solutions. Long-term runway supported by >100 Life Sciences programs and a multi-year plan to reach target margins (16% mid-point at Investor Day).
Profitability Risk
Life Sciences profitability remains sensitive to integration timing and product ramp; ag macro weakness and China headwinds could weigh on Mobile Solutions and On-Road/Off-Road volumes; wider inflation in select inputs and ongoing supply chain constraints could pressure gross margins; execution risk in scaling acquisitions and achieving targeted synergies.
Financial Position
Solid liquidity and modest leverage (net debt/EBITDA 0.7x); strong operating cash flow ($87.0M) and free cash flow ($65.7M); cash and short-term investments of $193.8M; ongoing capital returns via dividends and buybacks; disciplined capex and M&A spending aligned with growth strategy.
SWOT Analysis
Strengths
Diversified exposure across Mobile Solutions, Industrial Solutions, and Life Sciences reduces reliance on a single end-market cycle.
Strong backlog and pricing discipline support earnings visibility.
Technology leadership in filtration and a growing Life Sciences pipeline ( >100 therapies in development) create optionality for higher-margin growth.
Healthy cash generation and shareholder-friendly capital allocation (dividends + buybacks).
Weaknesses
Life Sciences remains near breakeven in the near term due to integration and ramp costs; SG&A pressures linked to acquisitions persist in the near term.
Life Sciences execution risk and potential lumpiness in large programs (e.g., bioreactors, bioprocessing).
Near-term exposure to ag and China end markets in Mobile Solutions; macro volatility in key geographies.
Opportunities
Scale and monetize Life Sciences acquisitions (Isolere/Univercells/Purilogics and Solaris) to unlock higher-margin growth.
Expansion of aftermarkets, Synteq XP fuel filtration, and PowerCore products to capture share gains in OEM and aftermarket channels.
Data analytics and AI-enabled operational efficiencies; potential product-level AI enhancements for connected filtration systems.
Threats
Agricultural market cycles and China demand softness could dampen organic growth in Mobile Solutions.
Raw material and freight cost volatility; inflationary pressures in select cost lines.
Acquisition integration risk and potential regulatory/competitive headwinds in Life Sciences.