Donaldson (NYSE: DCI) reported Q3 EPS of $0.66, $0.08 better than the analyst estimate of $0.58. Revenue for the quarter came in at $765 million versus the consensus estimate of $707.59 million.

GUIDANCE:

Donaldson sees FY2021 EPS of $2.28-$2.34, versus the consensus of $2.21.

• Donaldson is increasing its fiscal 2021 guidance due to strong third quarter fiscal 2021 results, current backlog levels, and incoming order rates. GAAP EPS is expected to be between $2.20 and $2.26, compared with fiscal 2020 GAAP EPS of $2.00. Excluding a negative impact of $0.08 per share related to restructuring activities in the second quarter of 2021, adjusted fiscal 2021 EPS2 is expected to be between $2.28 and $2.34. The Company expects full-year sales to increase between 9% and 11% versus fiscal 2020, compared with prior guidance of between 5% and 8%. Currency translation is expected to benefit fiscal year 2021 sales by approximately 3%.
• Fiscal 2021 Engine sales are now projected to increase between 12% and 14% from fiscal 2020, compared with prior guidance of an increase between 8% and 12%. Off-Road, On-Road, and Aftermarket are expected to show strong growth. Partially offsetting this growth is an expected year-over-year sales decline in Aerospace and Defense.
• Fiscal 2021 Industrial sales are expected to increase between 3% and 5% from fiscal 2020, compared with prior guidance in a range between a 2% decline and a 2% increase.
• 2Adjusted earnings per share is a non-GAAP financial measure that excludes the impact of the restructuring charges recorded in the second quarter of fiscal 2021.
• Growth in Industrial reflects an expected sales increase in IFS led by IAF and Process Filtration partially offset by declines in GTS and Special Applications.
• Donaldson expects fiscal 2021 adjusted operating margin between 13.8% and 14.2%,3 compared with 13.2% in fiscal 2020. The year-over-year improvement is expected to come from higher gross margin, reflecting improved absorption on higher sales, pricing initiatives, as well as operating expense leverage. The improvement is partially offset by higher raw material and freight costs, second half sales mix pressure, primarily in the Engine segment, and increased incentive compensation expense.
• The Company expects fiscal 2021 interest expense of approximately $13 million, and other income, net is forecast between $5 million and $7 million. Donaldson’s fiscal 2021 effective income tax rate is forecast between 24% and 25%.
• The Company expects fiscal 2021 capital expenditures between $55 million and $60 million. Cash flow conversion is still expected above 100%, reflecting strong year-to-date conversion and an increase in working capital. Donaldson expects to repurchase 1.5% to 2.0% of its outstanding shares during fiscal 2021.
• 3The adjusted operating margin forecast excludes the impact of the restructuring charges recorded in the second quarter of fiscal 2021

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