The dull global economy and falling currencies in Europe and Japan are cutting into sales at Donaldson Co., which reported a lackluster third quarter Friday that missed Wall Street expectations.
The Bloomington-based maker of filtration systems for factories, airplanes, trucks and other uses saw revenue and earnings fall a respective 4 and 2 percent during the quarter. Not convinced that the worst is over, officials said they also expect full-year 2013 sales to drop 2 to 4 percent from last year's record $2.5 billion.
"Our overall sales growth during the quarter continued to be challenged by the global economic environment," CEO Bill Cook told analysts.
Specifically the company was hurt when sales from its largest division — truck, diesel and other engine products — slowed, especially in Europe and Japan, Cook said. In all, currency issues slashed sales by $10 million during the quarter.
Cook said several of Donaldson's engine and factory filtration customers were waiting until the "last possible moment to provide us with an order. So whether that is on the industrial side with [our] dust collectors or on the engine side with on-road and off-road equipment, that [business] is just sort of stuck. People aren't willing to make those investments."
On the positive side, Cook said that gas turbine product sales increased 35 percent during the quarter. The gas turbine business is one of Donaldson's smallest divisions, so its business boost was not enough to save the quarter.
What the company wasn't able to deliver in sales, it tried to deliver by wringing out factory costs. That helped the earnings per share stay flat at 46 cents a share compared to a year ago. Still, analysts had been looking for 49 cents, according to Bloomberg.
Earnings were $70 million for the quarter, compared with $71 million for the same period a year ago. Quarterly sales were $619 million, down from $647 million a year ago.
Cook told analysts he believed that market conditions may have stabilized, but added that he had "not yet seen any strong signs of a material recovery for our customers in any of our capital equipment-related end markets."
As a result, he lowered Donaldson's earnings outlook for the year. He now expects earnings of $1.57 to $1.65 a share on sales of $2.4 billion to $2.45 billion for 2013. That's down from 2012, when Donaldson posted $2.5 billion in revenue and earnings of $1.63 per share.
Analysts who track the firm noted that several large U.S. industrial manufacturers also had a tough time generating sales growth during the quarter. The pressures of the global economy, the devaluation of the Japanese yen and destabilizing recessions across Europe recently impacted sales growth at many U.S. industrial giants such as 3M, General Electric and Pentair.
Regarding Donaldson, Derek Hoffman, an analyst with Wall Street Cheat Sheet, told investors in a newsletter Friday that "analysts have a neutral outlook for the company's next-quarter performance. … For the current year, the average estimate has moved down from a profit of $1.76 to a profit of $1.69 over the last ninety days."
Dee DePass • 612-673-7725
