Donaldson Company, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Todd Carpenter highlighted strong first quarter results with growing sales, operating profit margin, and earnings. The company's leadership in filtration, best-in-class technology, ability to help customers meet environmental goals, and balanced growth strategy contributed to success.
• Segment highlights: Mobile solutions' aftermarket robust with share gains in independent channel; industrial power generation business robust supported by data center and AI infrastructure build-outs; life sciences saw double-digit growth in food and beverage and disk drive.
• Tariff impact: Annualized estimate for tariff impact reduced to approximately $25 million from $35 million previously. Footprint optimization and cost reduction initiatives ongoing, expected mostly complete by second half of fiscal 2026.
• R&D investments: Focused on growth areas like solvent recovery, new disk drive technologies, and air and alternative fuels filtration.

Segment Performance

• Mobile Solutions: Total sales were $598 million, 5% above prior year. Aftermarket sales were $480 million, up 7% driven by strength in both OE and independent channels. Off-road sales of $95 million increased 6%, with gains in construction offsetting weakness in agriculture. On-road sales of $23 million declined 27% due to decreased global truck production. China business had overall sales up 15% over five consecutive quarters.
• Industrial Solutions: Industrial sales were $258 million, flat to prior year. Industrial Filtration Solutions (IFS) sales of $216 million grew 2% from strength in power generation (especially in Europe) and dust collection replacement part sales in the US. Aerospace and defense sales were $42 million, down 7% due to softer defense sales after large projects completed.
• Life Sciences: Sales of $79 million grew 13% year over year due to double-digit growth in food and beverage and disk drive, bolstered by project timing in upstream biotechnology businesses.

Guidance

• Increased operating margin and EPS outlook. Expect record sales of $3.8 billion and sales growth in each segment. Operating margin expansion of 80 basis points to a record 16.5%. All-time high earnings per share of $4.03.
• Sales guidance: Reiterated sales guidance for all businesses except on-road within mobile solutions. Total company sales expected to increase between 15% including pricing of about 1%. Mobile solution sales flat to up 4%. On-road sales now flat vs 2025; off-road sales forecast mid-single digits; aftermarket sales projected low single digits. Industrial solutions sales forecast to grow between 26%; life sciences sales expected to grow 15%.
• Operating margin guidance increased by 10 basis points to between 16.2% and 16.8%. EPS guidance increased by 3¢ to $3.95 to $4.11 per share, midpoint $4.03.
• Calendarization: Sales weighted towards back half of year (52% of full year sales); operating profit even more skewed towards back half (55% of full year profit generated between February and July).

Risks

• Forward-looking statements subject to risks and uncertainties described in press release and SEC filings. Factors include potential impacts from tariff changes, market fluctuations, project timing variations in certain segments (e.g., aerospace and defense), and execution risks related to footprint optimization and growth initiatives.

Question and Answer

• Q: What was IFS first fit in aftermarket revenue? How to think about first fit and aftermarket contribution to mid-single digit full year growth? On aftermarket, expectation to increase connected machines?

A: Brad Pogalz mentioned IFS both first fit and replacement were up, with power generation doing well. Todd Carpenter stated they expect to connect between two and three thousand dust collectors this year and are on target.

• Q: Speak to structural benefits realized from footprint optimization to date and pending efficiencies?

A: Brad Pogalz said very limited structural efficiencies to date, with a gain on sale of $9 million related to a UK plant. The next tranche of work will be ramping up in new production homes, with benefits building towards back half of fiscal 2026.

• Q: Pricing trends and how to think about full year?

A: Rich Lewis said pricing is in a normalized cycle, with costs managed well and competitive pricing, more normalized to pre-COVID conditions.

• Q: Regions performance and progress in November?

A: Todd Carpenter said Europe is strengthening, US is on solid foundation, Latin America is uneven, Asia Pacific is okay with China having nice quarter but waiting for more data points.

• Q: Mobile aftermarket share gains, restocking activity?

A: Todd Carpenter said a little of both on OE and independent channels, with OEs typically doing balance sheet management in second quarter but expecting bounce back in second half.

• Q: Industrial outlook, acceleration in forecast?

A: Brad Pogalz mentioned timing issues in defense and project timing in power gen, with sales volume and profitability expected to build up from there.

• Q: Disk drive business drivers and long-term outlook?

A: Rich Lewis said disk drive growth driven by AI and cloud-based storage, with HAMR technology driving challenges and opportunities. Brad Pogalz noted it's a couple percent of total Donaldson sales.

• Q: Data center impact on business?

A: Rich Lewis said data centers impact power generation, microelectronic, disk drive, and water cooling businesses through multiple angles.

• Q: Share gains impact on sales and full year?

A: Todd Carpenter said low single-digit share gains in mature markets, increasing in immature or project-based businesses like power generation.

• Q: Power gen business growth given sold-out position?

A: Todd Carpenter said ramp-up is the challenge, with growth baked into guidance and potential upside if executed better but subject to project delivery timelines.

• Q: Aftermarket business balance of year and assumptions?

A: Todd Carpenter said OE growth low single digits, independent channel more double digits, with OEs typically muted in second quarter but expecting bounce back in second half.

• Q: Footprint optimization benefits and next year?

A: Brad Pogalz said operating profit tilted 55% in second half, with most benefit from gross margin expansion and footprint optimization, expecting momentum to build as projects complete.