Donaldson profit falls on ag sector weakness

Donaldson Co. Inc. lowered its outlook Thursday after reporting disappointing quarterly results shaped by declining sales of agricultural engine-filtration products and weakness in Asia.

Its fiscal first-quarter results missed Wall Street expectations and Donaldson shares fell 6.9 percent.

Donaldson, a Bloomington-based manufacturer of filtration systems, reported that its truck, U.S. construction and factory filtration sales proved strong during the quarter. But that wasn't enough to overcome a steep downturn in sales to makers of ag equipment.

Executives said ag sales could plunge 25 to 35 percent this year as farmers in North America and Europe, coping with low crop prices, scale back orders for tractors and other machines for which Donaldson provides air, engine and fuel filters.

In Asia, mining and construction product sales continued to be soft. In the Middle East, deliveries of some of its turbine filtration products for power plants could be pushed into 2016 because of fighting and difficult conditions. And the rising value of the U.S. dollar hurt Donaldson's sales by about 2 to 3 percentage points.

Donaldson's profit fell 9 percent to $55.9 million, or 40 cents a share, for the quarter ended Oct. 31. Analysts expected a profit of 42 cents a share. Revenue dipped 0.5 percent to $597 million, well below analysts' forecast of $623 million.

"As we entered this year we were hoping for better growth of the top line for the quarter," Jim Shaw, chief financial officer, said. With the latest results, "We have begun to adjust more of our discretionary new spending."

Donaldson cut its full-year earnings outlook for fiscal 2015 to a range of $1.77 to $1.97 a share, below the previous range of $1.81 to $2.01 a share.

"This is not a great start to the year for them. The report was a very mixed bag," Matt Arnold, an Edward Jones analyst, said.

He noted Donaldson is investing in new products, efficiency technologies and adding staff in developing countries while at the same time controlling other costs. "They are investing in tomorrow's opportunities," Arnold said.

Donaldson is building a plant in Poland and opening distribution centers in Peru and Slovakia. The company expects to spend $90 million to $100 million in fiscal 2015 on key plant, distribution and equipment upgrades, chief executive Bill Cook said.