Hot Stock Analysis: Donaldson Company, Inc. (NYSE: DCI)

On Monday, Shares of Donaldson Company, Inc. (NYSE: DCI) inclined 1.20% to $51.55. The stock recorded $51.14 as its minimum price and hit the max level of $52.13, during its most recent trading session. It traded total volume of 149,076 shares lower than the average volume of 523.66K shares.

Donaldson Company, Inc. (DCI) today announced net earnings of $102.40M in fourth quarter and $180.30M for full-year 2018, compared with $68.20M and $232.80M, respectively, in 2017. Net earnings in the current and prior years were impacted by non-recurring items,3 including the Federal Tax Cuts and Jobs Act (“TCJA”) in fiscal 2018 and an escrow settlement in 2017 related to the Company’s acquisition of Northern Technical, L.L.C. (“settlement”).

Fiscal 2018 Performance:

Fourth quarter 2018 sales increased 9.8 percent to $724.70M from $660.10M in 2017, counting a 1.3 percent benefit from currency translation. Fourth quarter sales increased 14.0 percent for Engine Products and 1.9 percent for Industrial Products. Excluding benefits from currency translation, fourth quarter sales increased 8.5 percent, reflecting 13.1 percent growth in Engine Products and flat sales of Industrial Products.

Full-year 2018 sales increased 15.3 percent to $2.730B from $2.370B in 2017, counting benefits from currency translation and acquisitions accomplished in the prior year of 3.3 percent and 1.1 percent, respectively. Full-year sales increased 19.0 percent for Engine Products and 8.1 percent for Industrial Products, or 16.1 percent and 4.2 percent, respectively, excluding the benefit from currency translation. The table below illustrates year-over-year performance with and without the impact from currency translation.

Fourth quarter 2018 other income was $2.30M, contrast with $2.50M in 2017. Full-year other income declined to $4.90M from $12.90M last year, mainly driven by a one-time benefit in the prior year related to the settlement. Interest expense was $5.60M in fourth quarter and $21.30M for full-year 2018, contrast with $5.10M and $19.50M, respectively, in 2017.

Donaldson’s continued assessment of the TCJA impact resulted in a tax benefit of $26.00M in fourth quarter and a full-year charge of $84.10M. Excluding these impacts, the Company’s effective income tax rate was 26.2 percent in fourth quarter and 27.3 percent for the full year, contrast with prior-year adjusted rates of 25.6 percent and 28.3 percent, respectively. The fourth quarter and full-year rates benefitted from a lower U.S. corporate tax rate, stock option activity and favorable settlements of tax audits. Offsetting factors included foreign withholding tax and other matters related to the TCJA, combined with an unfavorable mix of earnings across tax jurisdictions.

Donaldson repurchased 0.30M shares, or 0.2 percent, of its common stock in fourth quarter and 2.60M shares, or 2.0 percent, during fiscal 2018. The fourth quarter and full-year repurchases reflect total investments of $14.30M and $122.00M, respectively, at an average price of $46.18 for both periods. Donaldson paid dividends during fourth quarter and full-year 2018 of $24.50M and $94.70M, respectively.

Fiscal 2019 Outlook:

The Company anticipates full-year 2019 interest expense of about $22.0M and other income between $12.0M and $16.0M. Donaldson’s fiscal 2019 effective income tax rate is projected between 24.7 and 26.7 percent.

The Company anticipates fiscal 2019 capital expenditures of $130.0M to $150.0M and cash conversion between 60 and 75 percent. Donaldson plans to repurchase about 2 percent of its outstanding shares during fiscal 2019.

DCI has the market capitalization of $6.61B and its EPS growth ratio for the past five years was -2.00%. The return on assets ratio of the Company was 8.80% while its return on investment ratio stands at 15.30%. Price to sales ratio was 2.42 while 84.10% of the stock was owned by institutional investors.

Grover Beam

Grover Beam has over 14 years experience in the financial services industry giving him a vast understanding of how news affects the financial markets. He is an active day trader spending the majority of her time analyzing earnings reports and watching commodities and derivatives. He has a Masters Degree in Economics from Westminster University with previous roles counting Investment Banking.

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