Donaldson Company, Inc. (NYSE: DCI) today updated its guidance for fiscal 2015.
"The second half of our fiscal year has been disappointing, driven by an unforeseen slowdown in our Engine Aftermarket distribution channels, further weakening in industrial conditions in China, continued softening in our Engine OEM Off-Road equipment end markets, and incremental pressure associated with the strong U.S. dollar, which we experienced throughout the third quarter," says Tod Carpenter, President and CEO of Donaldson.
"Consistent with the commitment made during our second quarter earnings call, we executed productivity and restructuring actions during our third quarter that are expected to generate annual savings of $20 million. These savings are incremental to the future benefits we expect to realize through the previously announced decision to close our facility in Grinnell, IA.
"In local currency, we continue to see organic growth in our On-Road, Industrial Filtration Solutions and Gas Turbine businesses. Despite uncertainty in the global industrial environment, we are strengthening our foundation for future growth as we continue to win new propriety first-fit programs in our Engine and Industrial segments. We have the right strategy, and I am confident that our business model, combined with our relentless focus on our customers, will ensure our company's future growth."
Updated Fiscal 2015 Outlook
- Full-year sales are now expected to be in the range of $2.3 billion to $2.4 billion, or 4 to 5% below last year. In local currency, sales are expected to increase 1 to 2%. The forecast for the second half of fiscal 2015 is based on the Euro at US$1.07 and 120 Yen to the US$. Compared to prior guidance, the estimated negative year-over-year impact from currency translation has grown to $152 million from $136 million.
- Adjusted operating margin1 for the full year is expected to be in the range of 12.7 to 13.1%, which compares to prior guidance of 13.6 to 14.4%.
- The company continues to expect the full-year tax rate will be between 27 and 29%.
- Adjusted diluted earnings per share (EPS)1 are now expected to be $1.51 to $1.61, which compares with prior guidance of $1.65 to $1.85 per share.
- Excluding the impact from any additional restructuring actions, GAAP diluted EPS are expected to be approximately 7 cents lower than adjusted EPS, driven by: Restructuring charges of approximately $10 million, or 5 cents per share, including approximately $6 million of charges related to the restructuring actions taken in our third quarter, a charge in the second quarter of $3.9 million, or 2 cents per share, resulting from a U.S. pension settlement.
- As part of the ongoing share repurchase program, Donaldson is targeting a reduction of outstanding shares of at least 4% in fiscal 2015.
1 Beginning with its fiscal 2015 second quarter, Donaldson provides adjusted operating margin and adjusted diluted earnings per share (adjusted EPS) measures, which are non-GAAP financial measures that exclude the impact of certain matters not related to the company's ongoing operations, including restructuring charges and expenses related to pension settlements.
Engine Products: Donaldson now forecasts full-year 2015 sales in U.S. dollars to decline 5 to 7%. In local currency, sales are expected to be flat to down 2%.
- The company sees lower growth rates for the Engine Aftermarket business in both OEM and independent distribution channels.
- Demand from Off-Road OEM first-fit customers remains mixed by end market and geography, and overall new equipment build rates have weakened.
- Consistent with prior guidance, Engine On-Road OEM customers expect increased production of heavy- and medium-duty trucks in fiscal 2015, and Aerospace and Defense sales are expected to experience a mid-single-digit increase in fiscal 2015.
Industrial Products: The company now forecasts full-year 2015 sales in U.S. dollars to decline 1 to 3%. In local currency, sales are expected to increase 4 to 6%.
- Donaldson now projects Industrial Filtration Solutions' sales to decline 3 to 7%, reflecting the impact of currency translation headwinds and softer first-fit equipment demand, partially offset by continued strong sales of replacement filters.
- It now anticipates Gas Turbine sales will increase 15 to 20%, which primarily reflects customers delaying delivery of some projects into our fiscal 2016.
- Consistent with prior guidance, Special Applications' sales are expected to be slightly down as lower membrane sales and currency headwinds offset improved demand for semiconductor and venting products.
Fiscal third and fourth quarter outlook for the company
- Third quarter sales are expected to decrease approximately 9% from the prior year, including the impact of foreign currency translation. Donaldson expects an adjusted operating margin in a range between 11.9 and 12.5%, and adjusted EPS to be 34 to 36 cents. Third quarter GAAP EPS will be lower than adjusted EPS by approximately 4 cents, driven by restructuring actions.
- Fourth quarter sales are expected to decrease between 10 and 12% from the prior year, including the impact of foreign currency translation. Donaldson expects an adjusted operating margin in a range between 13.7 and 14.3%, and adjusted EPS to be 36 to 46 cents. Excluding the impact from any additional restructuring actions, fourth quarter GAAP EPS will be lower than adjusted EPS by approximately 1 cent, driven by restructuring actions.