Donaldson (NYSE: DCI) reported Q1 EPS of $0.51, $0.02 worse than the analyst estimate of $0.53. Revenue for the quarter came in at $672.7 million versus the consensus estimate of $699.32 million.

“We are pleased with first quarter’s gross margin performance, and we remain on track to deliver another consecutive year of record profit,” said Tod Carpenter, chairman, president and chief executive officer. “As expected, demand in the first quarter was uneven. The market for new equipment was soft, sales of replacement parts were more stable, and growth businesses like Process Filtration were up notably from last year.

“We expect growth in our ‘Advance and Accelerate’2 portfolio will continue to outpace the company average, supported by further investments to gain share, while customer cautiousness combined with peaking levels of equipment production will likely pressure our ‘Critical Core’3 portfolio. Increasing gross margin remains our top operational priority, and we are making progress bringing new capacity online and optimizing our supply chain. We are also making progress on our initiatives to drive innovation, including our new Materials Research Center and recently announced commercial launches of connected solutions offerings. We are excited about our opportunities, and I am confident that we are well-positioned to navigate near-term unevenness while strengthening our foundation for long-term, profitable growth.”

GUIDANCE:

Donaldson sees FY2020 EPS of $2.21-$2.37, versus the consensus of $2.26.

Fiscal 2020 Outlook

Donaldson’s current guidance for fiscal 2020 sales, operating profit, EPS and capital deployment is consistent with prior guidance and is summarized below.

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.

4 EBITDA is a non-GAAP measure that the Company believes is useful in understanding its financial results. See the schedules attached to this press release for more information and a reconciliation of GAAP to non-GAAP measures.

5 See the “Accounting Considerations” section of this press release for more information.

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 projected to come from higher gross margin, partially offset by a higher operating 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.

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