Donaldson Company Announces Record
Third-Quarter and Nine-Month Results
Third Quarter Revenue Down 5 Percent and Up 6 Percent Year-To-Date; Record
Third-Quarter EPS at 39 Cents, Up 3 Percent; Record Nine-Month EPS at $1.16,
Up 5 Percent
MINNEAPOLIS, May 22 Donaldson Company, Inc. ,
today reported revenue of $269.7 million for its fiscal third quarter ended
April 30, 2001. Revenue for the quarter was down 5.4 percent from
$285.3 million in the same period last year. Net earnings were a record
$17.8 million, up 2.2 percent from $17.5 million last year. Record diluted
net earnings per share of 39 cents were up 2.6 percent from 38 cents in the
prior year.
For the nine-month period, the company reported record revenue of
$839.2 million, up 6.1 percent from $791.1 million last year. Foreign
currency translation reduced revenue by 3.2 percent, substantially reducing
the benefit from last year's acquisitions. Net of these factors, revenue was
up 4.5 percent. Net earnings were a record $52.7 million, up 1.7 percent from
$51.9 million last year. Record diluted net earnings per share of $1.16 were
up 4.5 percent from $1.11 last year.
"We continue to reap the benefits of our 15-year effort to build a
diversified portfolio of filtration businesses," said Bill Van Dyke, chairman,
president and chief executive officer. "This year, we see extraordinary
performance in gas turbine and disk drive markets mitigating the negative
trends in other sectors. In the face of tough economic conditions, we held
our gross margin and reduced our operating expenses, largely offsetting
negative foreign currency translation. Increased profitability from foreign
operations lowered our effective tax rate, and we reduced shares outstanding
through our ongoing share repurchase program. These factors, together,
allowed us to post a year-over-year EPS increase. Though nothing suggests
near-term relief from the broad macro-economic pressure, increased operating
efficiencies and a continuation of the revenue trends suggested by our orders
and backlogs put us in good position to post our 12th consecutive record
earnings year."
Income Statement Discussion
The impact of foreign currency translation, mainly due to the continued
weakness of the Euro against the U.S. dollar, decreased net sales by
$8.7 million from the third quarter last year and decreased net earnings by
$0.8 million. Year-to-date, foreign currency translation has decreased net
sales by $26.9 million and net earnings by $1.9 million. Total revenue would
have decreased only 2.4 percent in the quarter and increased 9.5 percent
year-to-date using last year's foreign exchange rates. On a local currency
basis, revenues outside the U.S. increased 3 percent in the quarter and
23 percent year-to-date.
Gross margin for the quarter was 29.4 percent, down nominally from
29.7 percent in the same period last year. During the early part of the
quarter, gross margin was negatively affected by the company's decision to
shut down four plants, two in the United States and two in Asia, for about two
weeks in response to inventory corrections in many of the company's end
markets. Year-to-date, gross margin was 30.0 percent versus 30.1 percent last
year. Significant progress in plant rationalization efforts this year has
reduced earnings by 12 cents year-to-date. Only 1 cent was incurred in the
third quarter, signaling that the company has turned the corner on these
efforts. Improved operating efficiencies will be reflected in the company's
future profitability.
Operating expenses were 20.2 percent of sales, down from 20.6 percent last
year. The improvement, in part, reflects the progress made toward integrating
last year's DCE acquisition. Also contributing to the improvement were the
company's expense reduction initiatives implemented late in the quarter.
Year-to-date, operating expenses were 20.4 percent of sales versus
20.3 percent last year.
Operating income of $24.6 million was down 5.5 percent from $26.0 million
in the third quarter last year. Operating margin for the quarter was
9.1 percent, unchanged from the third quarter in the prior year.
Year-to-date, operating income was $80.0 million, up 3.4 percent from
$77.4 million last year. Operating margin year-to-date was 9.5 percent versus
9.8 percent last year.
Other income for the quarter increased to $1.9 million, up $0.2 million.
Year-to-date, other income was $2.7 million, a decrease of $0.3 million. For
the quarter, interest expense increased to $3.1 million, up $0.3 million,
reflecting the higher short-term debt levels related to last year's
acquisitions, substantially offset by falling short-term interest rates during
the quarter. Year-to-date, interest expense was $9.4 million, up $3.2 million
from last year.
The income tax rate for the quarter was 23.7 percent, which reduced the
year-to-date rate to 28.0 percent, down from 30.0 percent in fiscal 2000. The
tax rate was adjusted to reflect the increased contribution from the company's
international operations. The company anticipates maintaining the 28 percent
tax rate going forward.
"Economic conditions softened during the last quarter as weakness from the
U.S. economy spread to many of our international markets," said Van Dyke. "In
response, we have implemented several expense reduction initiatives. We are
addressing payroll costs through temporary employee and contractor reductions
and have implemented a hiring freeze. In addition to the previously mentioned
temporary plant closings, we reduced travel and are reviewing all
discretionary expenses. However, the company will continue to advance key
future-oriented infrastructure initiatives already underway, including the
U.S. systems implementation project, product rationalization in both engine
and dust collection and additional plant rationalization. The DCE integration
is progressing, as dust collection gross margin rose by roughly 120 basis
points and operating expenses dropped by about $1 million in each of the last
two quarters."
EBITDA for the quarter was $35.0 million, an increase of 0.6 percent
compared to $34.8 million last year. Year-to-date, EBITDA was $109.3 million,
an increase of 7.9 percent compared to $101.3 million last year.
Year-to-date, cash generated by operations was $44.9 million. The cash
generated, plus additional debt of $10.6 million, provided the funding for
capital expenditures of $27.0 million, the repurchase of $10.3 million of
stock and the payment of $9.8 million in dividends.
Backlog
Total backlog was a record $362 million, up 12 percent from the same
period last year and up 3 percent from the prior quarter end. In the
Industrial Products segment, total backlog increased 3 percent from the prior
quarter end and 40 percent from the same period last year. In the Engine
Products segment, total backlog increased 2 percent from the prior quarter end
but decreased 9 percent from the same period last year.
The 90-day backlog was a third quarter record of $190 million, up
9 percent from the same period last year and up 10 percent from the
prior-quarter end. In the Industrial Products segment, 90-day backlog
increased 41 percent from the same period last year and increased 27 percent
from the prior-quarter end. These increases reflect an exceptionally strong
backlog in gas turbine products compared to the same quarter last year and the
second quarter this year (backlogs were up 112 percent and 47 percent,
respectively). In the Engine Products segment, 90-day backlog decreased
15 percent from the same period last year and decreased 5 percent from the
prior-quarter end.
Industrial Products Segment
Industrial Products sales for the third quarter were $120.4 million, an
increase of 8.4 percent from $111.1 million in the prior year. Year-to-date,
revenues were a record $384.2 million, an increase of 30.0 percent from
$295.5 million in the prior year. Excluding the acquisition of DCE,
year-to-date sales were up 18.9 percent to $351.5 million.
Gas turbine product sales for the third quarter were $40.9 million, an
increase of 25.9 percent from $32.5 million in the prior year. Year-to-date,
gas turbine product sales were $127.1 million, up 48.1 percent from
$85.8 million in the prior year. Gas turbine product sales continued their
extraordinary growth as the North American gas turbine manufacturers are
running at full capacity.
Dust collection product sales in the third quarter were $50.2 million, a
decrease of 6.0 percent from $53.3 million in the prior year. Year-to-date,
dust collection product sales were $166.3 million, up 28.3 percent from
$129.6 million in the prior year. Excluding the acquisition of DCE, dust
collection product sales were $133.6 million, an increase of 3.1 percent
year-to-date. Growth rates for U.S. dust collection product sales continued
to slow in the third quarter, particularly in the Great Lakes region, as U.S.
industrial production declined in April for the seventh consecutive month.
International sales continued to be flat due to unfavorable foreign exchange
rates.
Sales of special application products in the third quarter were
$29.4 million, an increase of 16.2 percent from $25.3 million in the prior
year. Year-to-date, special application product sales were $90.8 million, an
increase of 13.3 percent from $80.1 million in the prior year. Disk drive
filter sales were strong in the quarter, along with aircraft cabin air filter
sales and Tetratec membrane sales. These strong sales helped offset lost
revenues from exited product lines.
Engine Products Segment
Engine Products sales for the third quarter were $149.3 million, a
decrease of 14.3 percent from $174.2 million in the prior year. Year-to-date,
revenues were $455.1 million, a decrease of 8.2 percent from $495.6 million in
the prior year. The decrease in revenue reflects U.S. economic weakness and
the strong U.S. dollar overseas.
Worldwide sales of medium- and heavy-duty truck products in the quarter
were $20.3 million, a decrease of 46.4 percent from $37.9 million in the prior
year. While sales continued year-over-year decreases, incoming orders
indicate the bottom may have been reached in mid-winter. There is no
suggestion of a quick truck market recovery, however, our third quarter U.S.
truck orders were approximately 50 percent and 100 percent higher than first
and second quarters, respectively. Year-to-date, sales were $59.8 million, a
decrease of 50.0 percent from $119.6 million in the prior year. The decrease
reflects the dramatic downturn in the North American truck market and the
company's decision in the second quarter to discontinue a block of business
with a major customer due to unfavorable commercial terms. The decrease was
partially offset by new sales of catalytic converter mufflers to OEMs striving
to meet the new EPA diesel emission standards.
Worldwide sales of off-road products in the quarter were $46.3 million, a
decrease of 11.4 percent from $52.3 million in the prior year. Year-to-date,
sales were $136.9 million, a decrease of 3.0 percent from $141.2 million in
the prior year. While the decrease reflects slowing economic conditions in
international end markets, worldwide backlog remained essentially flat with
last year.
Aftermarket product sales in the quarter were $82.7 million, a decrease of
1.6 percent from $84.0 million in the prior year. Year-to-date, sales were
$258.4 million, an increase of 10.0 percent from $234.8 million in the prior
year. Despite flat third quarter year-over-year sales, orders for North
American aftermarket products increased approximately 18 percent over the
second quarter.
Outlook
Within the Industrial Products segment, the company expects continued
strength in gas turbine sales. Dust collection sales are expected to
experience difficult year-over-year comparisons but improving results on a
sequential quarter basis. Within the Engine Products segment, the company
expects negative year-over-year comparisons in North American transportation
products in the fourth quarter but improving sequential quarter results as
truck build schedules begin to increase and recently-introduced product lines
start to generate revenues. Off-road and aftermarket product sales are
expected to be flat or slightly down compared to both the prior year and last
quarter.
Current economic conditions, including the strong U.S. dollar, weak U.S.
industrial production, and slowing international economies, are expected to
persist throughout the remainder of fiscal 2001. Our expectation for a 12th
consecutive earnings record, despite this macro-economic weakness, hinges on
meeting our fourth quarter gas turbine shipment schedule while other end
markets, on average, remain stable. The company will continue its expense
reduction initiatives implemented during the third quarter and expects to see
those benefits along with the continued impact of plant rationalization
efforts.
Donaldson Company, Inc., headquartered in Minneapolis, Minn., is a leading
worldwide provider of filtration systems and replacement parts. Founded in
1915, Donaldson is a technology-driven company committed to satisfying
customer needs for filtration solutions through innovative research and
development. Donaldson serves customers in the industrial and engine markets
including dust collection, power generation, specialty filtration, off-road
equipment, trucks, and automotive. More than 8,400 employees contribute to
the company's success at roughly 40 manufacturing locations around the world.
In fiscal year 2000, Donaldson reported record sales of more than $1 billion
and achieved its eleventh consecutive year of double-digit earnings growth.
Donaldson is a member of the S&P MidCap 400 Index and Donaldson shares are
traded on the New York Stock Exchange under the symbol DCI. Additional
company information is available at http://www.donaldson.com
SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995
The company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is making this
cautionary statement in connection with such safe harbor legislation. This
earnings release, the Annual Report to Shareholders, any Form 10-K, 10-Q or
Form 8-K of the company or any other written or oral statements made by or on
behalf of the company may include forward-looking statements which reflect the
company's current views with respect to future events and financial
performance, but involve uncertainties that could significantly impact
results. The words "believe," "expect," "anticipate," "intends," "estimate,"
"forecast," "plan," "project," "should" and similar expressions are intended
to identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All forecasts and projections are
"forward-looking statements" and are based on management's current
expectations of the company's near-term results, based on current information
available pertaining to the company, including the risk factors noted below.
The company wishes to caution investors that any forward-looking
statements made by or on behalf of the company are subject to uncertainties
and other factors that could cause actual results to differ materially from
such statements. These uncertainties and other risk factors include, but are
not limited to: risks associated with currency fluctuations, commodity
prices, world economic factors, political factors, international operations,
highly competitive markets, changes in product demand and changes in the
geographic and product mix of sales, acquisition opportunities and integration
of recent acquisitions, facility and product line rationalization, research
and development expenditures, including ongoing information technology
improvements, and governmental laws and regulations, including diesel
emissions controls. For a more detailed explanation of the foregoing and
other risks, see Exhibit 99, which is filed with the Securities and Exchange
Commission. The company wishes to caution investors that other factors may in
the future prove to be important in affecting the company's results of
operations. New factors emerge from time to time and it is not possible for
management to predict all such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or a
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the company's views as of the
date the statement is made. The company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
April 30 April 30
2001 2000 2001 2000
Net sales $269,721 $285,277 $839,221 $791,083
Cost of sales 190,541 200,465 587,769 552,795
Gross margin 79,180 84,812 251,452 238,288
Operating expenses 54,571 58,780 171,461 160,927
Operating income 24,609 26,032 79,991 77,361
Other (income)
expense (1,868) (1,673) (2,653) (2,912)
Interest expense 3,104 2,776 9,401 6,181
Earnings before
income taxes 23,373 24,929 73,243 74,092
Income taxes 5,547 7,479 20,508 22,228
Net earnings $17,826 $17,450 $52,735 $51,864
Weighted average
shares outstanding 44,317,697 45,723,448 44,388,211 45,948,764
Diluted shares
outstanding 45,409,996 46,548,820 45,480,057 46,787,967
Net earnings per
share $.40 $.38 $1.19 $1.13
Net earnings per
share assuming
dilution $.39 $.38 $1.16 $1.11
Dividends paid per
share $.075 $.070 $.22 $.20
Capital
expenditures $11,730 $11,934 $26,985 $32,046
Depreciation and
amortization $8,744 $7,736 $27,375 $23,054
EBITDA $35,023 $34,815 $109,279 $101,256
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
April 30 July 31
2001 2000
ASSETS
Cash and cash equivalents 34,554 24,149
Accounts receivable -- net 216,729 202,361
Inventories -- net 112,980 119,363
Prepaid expenses and other current assets 33,737 29,606
TOTAL CURRENT ASSETS 398,000 375,479
Other assets and deferred taxes 88,302 89,633
Property, plant and equipment -- net 203,440 204,545
TOTAL ASSETS 689,742 669,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable 83,888 82,320
Employee compensation and other liabilities 58,478 68,031
Notes payable 86,247 85,034
Income taxes payable 1,687 58
Current maturity long-term debt 66 279
TOTAL CURRENT LIABILITIES 230,366 235,722
Long-term debt 99,354 92,645
Other long-term liabilities 57,651 61,125
TOTAL LIABILITIES 387,371 389,492
EQUITY 302,371 280,165
TOTAL LIABILITIES & EQUITY 689,742 669,657
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
April 30
2001 2000
OPERATING ACTIVITIES
Net earnings $52,735 $51,864
Adjustments to reconcile net earnings
to net provided by operating activities:
Depreciation and amortization 27,375 23,054
Changes in operating assets and liabilities (23,354) (6,263)
Other (11,888) (3,066)
Net Cash Provided by Operating Activities 44,868 65,589
INVESTING ACTIVITIES
Net expenditures on property and equipment (26,985) (32,046)
Acquisitions and investments in unconsolidated
affiliates net of cash acquired 2,250 (84,829)
Net Cash Used in Investing Activities (24,735) (116,875)
FINANCING ACTIVITIES
Purchase of treasury stock (10,297) (20,190)
Net change in debt 10,625 95,227
Dividends paid (9,767) (9,204)
Other 927 25
Net Cash Provided by (Used in) Financing
Activities (8,512) 65,858
Effect of exchange rate changes on cash (1,216) (595)
Increase in cash and cash equivalents 10,405 13,977
Cash and Cash Equivalents-Beginning of Year 24,149 41,944
Cash and Cash Equivalents-End of Period $34,554 $55,921
MAKE YOUR OPINION COUNT - Click Here
http://tbutton.prnewswire.com/prn/11690X67544846
