Donaldson 2025 Q3 Earnings Misses Targets as Net Income Declines 49%

Donaldson (DCI) reported its fiscal 2025 Q3 earnings on Jun 03rd, 2025. Despite a modest revenue increase, Donaldson missed expectations with a 49% drop in net income and a 47.9% decline in EPS compared to the previous year. The company raised its adjusted EPS guidance for the full fiscal year, projecting between $3.64 and $3.70, and anticipates operating margins to improve by 40 basis points year-over-year. The fiscal projections were adjusted, reflecting record levels despite ongoing macroeconomic uncertainties.

Revenue

Donaldson reported a total revenue of $940.10 million for fiscal 2025 Q3, marking a 1.3% increase from the previous year. The Mobile Solutions segment contributed significantly with $582.60 million, including revenue from Off-Road at $95.60 million, On-Road at $26.90 million, and Aftermarket at $460.10 million. The Industrial Solutions segment accounted for $283.30 million, with Industrial Filtration Solutions bringing in $231.80 million and Aerospace and Defense generating $51.50 million. The Life Sciences segment added $74.20 million to the total company revenue.

Earnings/Net Income

Donaldson's EPS fell sharply by 47.9%, reaching $0.49 in fiscal 2025 Q3 from $0.94 in fiscal 2024 Q3. Additionally, net income decreased to $57.80 million, representing a 49.1% decline from $113.50 million in the prior year, indicating a challenging earnings environment for the company.

Price Action

The stock price of Donaldson dropped 6.36% during the latest trading day, edged down 1.48% over the most recent full trading week, and rose 5.24% month-to-date.

Post-Earnings Price Action Review

The strategy of purchasing Donaldson shares upon revenue exceeding expectations and holding them for 30 days resulted in moderate returns but was accompanied by considerable volatility and risk. Although the 30-day holding period limited potential gains, yielding a 37.12% return, this was significantly below the benchmark return of 78.92%. The strategy's Sharpe ratio at 0.27 highlighted a low risk-adjusted return, given the maximum drawdown of -32.55% and a volatility of 24.23%. These factors underscore the inherent risks of this approach, despite some profitable periods.

CEO Commentary

Tod Carpenter, Chairman, President and CEO, expressed pride in Donaldson's ability to achieve record sales and adjusted earnings despite macro uncertainties. He highlighted that "earnings growth has outpaced sales growth for seven quarters in a row," emphasizing the importance of their "razor-to-sell razorblade model." Carpenter noted that the company continues to prioritize long-term investments in technology and targeted capital expenditures while maintaining strong shareholder returns through dividends and share repurchases. He acknowledged the positive momentum in key segments and the appointment of Rich Lewis as Chief Operating Officer, expressing optimism about strengthening execution across the organization.

Guidance

Donaldson projects total sales to increase between 1% and 3% for fiscal 2025, with adjusted EPS guidance of $3.64 to $3.70, reflecting a record level. The company expects operating margins to remain between 15.6% and 16%, indicating a 40 basis point year-over-year expansion. For Mobile Solutions, sales are forecasted to be flat to up 2%, while Industrial Solutions anticipates sales growth of 2% to 4%. Capital expenditures are expected to be between $75 million and $90 million, focusing on growth through capacity expansion and technology projects.

Additional News

In recent developments, Donaldson announced the appointment of Rich Lewis as the new Chief Operating Officer, effective August 1, 2025. This transition comes as part of the company's strategic leadership realignment, aimed at enhancing operational execution across its global footprint. Additionally, Donaldson's Board of Directors approved an 11% increase in its quarterly cash dividend, raising it from 27.0 cents to 30.0 cents per share. This marks the 30th consecutive year of annual dividend increases, reflecting the company's strong financial health and consistent commitment to returning value to shareholders. Furthermore, Donaldson accelerated its share repurchase program to 3.3% of outstanding shares year-to-date.