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Category: Stock Market and Donaldson
Date: 5 September 2019 Stock Price: $50.20 We take a look at the 4th quarter earnings for their 2019 fiscal year of Donaldson Company, the engine and industrial filtrations product company
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About Donaldson Company
Founded in 1915 and based in Bloomington, Minnesota, Donaldson is a technology-led filtration company. In fiscal 2018, the Company delivered revenue of $2.7 billion in sales through its diversified portfolio of Engine and Industrial filtration products. Donaldson operates a network of approximately 140 sales, manufacturing and distribution locations in 44 countries across the world
Financial overview of Donaldson's latest earnings report
The numbers we are interested in (for the quarter):
- Total sales: $726.9 million (up from $724.7 million from the same quarter of the previous year)
- Cost of sales : $483.1 million (up from $471.9 million for the same quarter of the previous year)
- Net income: $50.8 million (down from $102.4 million for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 129.7 million (up from 131.4 million for the same quarter of the previous year)
- Diluted net income per share: $0.45 (down from $0.78 for the same quarter of the previous year)
- Cash dividend per share: $0.21
- Dividend yield: 1.6%
- Cash and cash equivalents: $177.8 million
- Cash and cash equivalents per share: $1.37
- Cash and cash equivalents makes up 2.7% of Donaldson's current market capital
- Cash and cash equivalents makes up 8.3% of Donaldson's total assets
- Accounts receivable: $529.5 million
- Accounts receivable makes up 24.7% of Donaldson's total assets. We get nervous when this gets above 20%)
- Inventories: $332.8 million
- Inventories makes up 15.5% of Donaldson's total assets
- Total shareholders' equity of Donaldson's: $892.7 million
- Shareholders' equity per share: $6.88
Donaldson Company's management commentary on the results and earnings guidance
MINNEAPOLIS--(BUSINESS WIRE)-- Donaldson Company, Inc. (NYSE: DCI) today reported 2019 net earnings of $58.0 million in fourth quarter and $267.2 million for the full year, compared with $102.4 million and $180.3 million, respectively, in 2018. Excluding certain one-time items in the current and prior years,1 adjusted earnings per share (EPS)2 were $0.61 in fourth quarter and $2.21 for the full-year 2019, an increase of 5.2 percent and 10.5 percent, respectively, from 2018. A reconciliation of GAAP to non-GAAP measures is attached to this press release.
“We generated record sales and profit in 2019, due in part to strong performance in our Advance and Accelerate3 businesses, and we made a record level of investments to drive long-term profitable growth,” said Tod Carpenter, chairman, president and chief executive officer. “We were pleased with sales results last quarter, which matched our forecast, and earnings were also in line as a better-than-expected tax rate offset the impact of demand volatility on gross margin.
“Our fiscal 2020 plan reflects focused portfolio management in an uneven demand environment. It is likely that uncertainty related to global trade and the political environment will keep our customers cautious, and some of our engine-related end markets are nearing the peak of their economic cycle. As these factors affect demand, our innovative products with recurring revenue, combined with disciplined expense planning, give us greater stability and flexibility as we remain focused on the future. We are making incremental investments to drive our strategic priorities in 2020, and we are aggressively pursuing gross margin improvement opportunities. Our company is aligned on our strategic and operational objectives, and we are excited about our path to delivering another year of record profit.”
Fiscal 2020 Outlook
Donaldson expects fiscal 2020 GAAP EPS between $2.21 and $2.37, compared with fiscal 2019 GAAP and adjusted EPS of $2.05 and $2.21, respectively.
Compared with 2019, fiscal 2020 sales are projected in a range between a 2 percent decline and a 4 percent increase, including a negative impact from currency translation of 1 to 2 percent that is partially offset by price benefits of approximately 1 percent. Compared with 2019, fiscal 2020 Engine sales are projected in a range between a 4 percent decline and a 2 percent increase, reflecting growth in Aerospace and Defense and Aftermarket, combined with lower year-over-year sales in the Company’s first-fit On-Road and Off-Road businesses. Industrial sales are expected to increase from fiscal 2019 between 2 and 8 percent, reflecting growth in IFS and GTS, partially offset by declining sales in SA. Within Industrial, growth in IFS is due in part to one quarter of incremental benefits from the acquisition of BOFA. Currency translation is expected to negatively impact both segments by 1 to 2 percent.
Donaldson expects fiscal 2020 operating margin between 13.9 and 14.5 percent, compared with 13.6 percent in 2019. The year-over-year improvement is due to higher gross margin, partially offset by a higher expense rate.
The Company expects full-year 2020 interest expense between $18 million and $20 million, and other income is forecast between $4 million and $8 million. Donaldson’s fiscal 2020 effective income tax rate is forecast between 25.0 and 27.0 percent.
The Company expects fiscal 2020 capital expenditures between $110 million and $130 million, and cash conversion is forecast between 80 and 95 percent. Donaldson expects to repurchase approximately 2 percent of its outstanding shares during fiscal 2020.
“We generated record sales and profit in 2019, due in part to strong performance in our Advance and Accelerate3 businesses, and we made a record level of investments to drive long-term profitable growth,” said Tod Carpenter, chairman, president and chief executive officer. “We were pleased with sales results last quarter, which matched our forecast, and earnings were also in line as a better-than-expected tax rate offset the impact of demand volatility on gross margin.
“Our fiscal 2020 plan reflects focused portfolio management in an uneven demand environment. It is likely that uncertainty related to global trade and the political environment will keep our customers cautious, and some of our engine-related end markets are nearing the peak of their economic cycle. As these factors affect demand, our innovative products with recurring revenue, combined with disciplined expense planning, give us greater stability and flexibility as we remain focused on the future. We are making incremental investments to drive our strategic priorities in 2020, and we are aggressively pursuing gross margin improvement opportunities. Our company is aligned on our strategic and operational objectives, and we are excited about our path to delivering another year of record profit.”
Fiscal 2020 Outlook
Donaldson expects fiscal 2020 GAAP EPS between $2.21 and $2.37, compared with fiscal 2019 GAAP and adjusted EPS of $2.05 and $2.21, respectively.
Compared with 2019, fiscal 2020 sales are projected in a range between a 2 percent decline and a 4 percent increase, including a negative impact from currency translation of 1 to 2 percent that is partially offset by price benefits of approximately 1 percent. Compared with 2019, fiscal 2020 Engine sales are projected in a range between a 4 percent decline and a 2 percent increase, reflecting growth in Aerospace and Defense and Aftermarket, combined with lower year-over-year sales in the Company’s first-fit On-Road and Off-Road businesses. Industrial sales are expected to increase from fiscal 2019 between 2 and 8 percent, reflecting growth in IFS and GTS, partially offset by declining sales in SA. Within Industrial, growth in IFS is due in part to one quarter of incremental benefits from the acquisition of BOFA. Currency translation is expected to negatively impact both segments by 1 to 2 percent.
Donaldson expects fiscal 2020 operating margin between 13.9 and 14.5 percent, compared with 13.6 percent in 2019. The year-over-year improvement is due to higher gross margin, partially offset by a higher expense rate.
The Company expects full-year 2020 interest expense between $18 million and $20 million, and other income is forecast between $4 million and $8 million. Donaldson’s fiscal 2020 effective income tax rate is forecast between 25.0 and 27.0 percent.
The Company expects fiscal 2020 capital expenditures between $110 million and $130 million, and cash conversion is forecast between 80 and 95 percent. Donaldson expects to repurchase approximately 2 percent of its outstanding shares during fiscal 2020.
Donaldson Company (NYSE: DCI) stock price history
The image below, obtained from Google shows the stock price history of Donaldson company for the last 5 years. And its offered mediocre returns for shareholders over the last 5 years. The stock priced increased from around $42 a stock to just over $50 its trading at now, And the group is current trading at basically the mid point between its 52 week low and its 52 week high.
Donaldsons (NYSE: DCI) latest stock valuation
So based on Donaldsons latest earnings report what do we value the group's stock at? Our valuation models provide a target price of $42 per Donaldson share. We therefore believe Donaldsons' stock is overvalued and we would not recommend fundamental long term investors to buy the stock as it does not offer a value proposition at its current price. Rather look to enter the stock at 10% below our target price (full value price) of $42. So a good price would be around $38 to buy the stock at.