Donaldson Company, Inc. DCI is poised to gain from solid momentum across its segments. The Mobile Solutions segment has been benefiting from higher volume in the aftermarket business, driven by healthy demand for replacement filters for both air and liquid filtration applications. The Industrial Solutions segment is driven by persistent strength in the aerospace and defense business. Robust momentum in the commercial aerospace and rotorcraft markets, as well as solid demand in defense markets due to the modernization of equipment and the impact of global conflicts, augurs well for the segment. 

Strength in the bio-processing business, arising from an increase in lab-based applications and bio-reactor production, is boosting the Life Sciences segment. Solid momentum in the disk drive business is also aiding the segment.

The company believes in expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions. In August 2024, Donaldson completed the acquisition of a 49% minority stake in Medica S.p.A. The inclusion of Medica’s technology and expertise in filtration products will enable the company to penetrate new markets and diversify its offerings in the medical device and water purification sectors. 

In June 2023, the company acquired Univercells Technologies, expanding its growing offering in the life sciences industry. Univercells will be added to Donaldson’s Life Sciences segment. The company acquired Isolere Bio in February 2023. The Isolere buyout enabled Donaldson to create leading separation and filtration solutions for emerging genetic-based drugs.  Isolere’s revenues are reported within the Life Sciences segment.

Donaldson is committed to rewarding its shareholders handsomely through dividends and share buybacks. Dividend payments totaled $122.8 million in fiscal 2024. The company bought back shares worth $162.7 million in fiscal 2024. It is worth noting that its quarterly dividend was hiked 8% in May 2024. The company has raised its dividend for 28 consecutive years. In November 2023, its board of directors approved a new repurchase program, authorizing it to repurchase up to 12 million shares of its common stock. The new repurchase program replaced the previous one, which was approved in 2019.

In the past three months, this Zacks Rank #3 (Hold) company’s shares have gained 5.1% compared with the industry’s 0.7% growth.

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Headwinds Plaguing DCI

Donaldson has been witnessing weakness in the on-road and off-road businesses. Lower levels of equipment production owing to softness in industrial markets, particularly in the United States and China, are affecting the company's on-road business. Weakness in agriculture markets and soft end-market demand in China are upsetting the off-road business. Also, challenged market conditions in dust collection and power generation verticals within the industrial filtration solutions business remain concerning.

The company has been dealing with the adverse impacts of high selling, general and administrative expenses. Increasing headcount and incremental expenses associated with investments in acquired businesses are pushing up the selling, general and administrative expenses, which increased 5.7% to $636.7 million in fiscal 2024. The impact of these expenditures is evident in the rise of the selling, general and administrative expenses as a percentage of total revenues, which climbed 20 basis points to reach 17.8%. Also, the overall operating expenses increased 7.3% year over year to $730.3 million in fiscal 2024. The metric, as a percentage of total revenues, increased 60 basis points to 20.4%.

Stocks to Consider

Some better-ranked companies are discussed below.

Atmus Filtration Technologies Inc. ATMU currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ATMU delivered a trailing four-quarter average earnings surprise of 13.8%. In the past 60 days, the Zacks Consensus Estimate for Atmus’ 2024 earnings increased 5.2%.

Tetra Tech, Inc. TTEK presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 4.5%.

In the past 60 days, the Zacks Consensus Estimate for TTEK’s fiscal 2024 earnings has remained steady.

RBC Bearings Incorporated RBC presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 2.5%.

In the past 60 days, the consensus estimate for RBC’s fiscal 2025 earnings has increased 1.4%.

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Donaldson Company, Inc. (DCI) : Free Stock Analysis Report

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