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Donaldson Reports Fiscal 2018 3rd Quarter Earnings

Third quarter 2018 sales increased 15.1 percent to $700 million from $608.2 million last year.

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Donaldson Co. Inc. has announced third quarter 2018 net earnings of $69.9 million, compared with net earnings of $60.1 million in the prior year. Third quarter GAAP earnings per share increased 17.8 percent to 53 cents in 2018, up from 45 cents in 2017.

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“We are pleased to have delivered another quarter of strong sales growth in both segments, reflecting benefits from consistent execution of our strategic priorities combined with favorable market conditions,” said Tod Carpenter, chairman, president and CEO. “Based on incremental strength across our company, particularly in our Engine first-fit and Industrial businesses, and continued momentum in many of our end markets, we now forecast full-year sales to increase about 15 percent and adjusted EPS to be up 17 to 19 percent.

“As we close the year, our strategic agenda is unchanged: invest in our customers, technology innovation, e-commerce and capacity expansion. Additionally, we are addressing the inflationary and demand-related pressures that have been affecting our margin. We made progress last quarter by implementing further cost-cutting initiatives and global price increases, and we view this work as ongoing. Our employees are showing tremendous commitment to enhancing our operating margin while executing our strategic priorities, and I am confident that their efforts position us well to deliver our financial and strategic targets this year and into the future.”

Third quarter 2018 sales increased 15.1 percent to $700 million from $608.2 million last year. The year-over-year increase includes benefits from currency translation and acquisitions completed in the prior year of approximately 5.7 percent and 1.4 percent, respectively.

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Compared with the prior year, third quarter 2018 sales increased 16.4 percent in the Engine Products segment and 12.4 percent in the Industrial Products segment, or 11.3 percent and 5.4 percent, respectively, excluding the benefit from currency translation.

Third quarter 2018 operating income rate declined slightly to 14.4 percent from 14.5 percent in 2017, reflecting lower gross margin that was partially offset by operating expense leverage.

Donaldson’s third quarter 2018 other income increased to $3.5 million from $0.6 million in 2017, with a lower loss on foreign exchange being the largest driver. Third quarter interest expense was $5.4 million in 2018, compared with $4.8 million in 2017. The company’s third quarter 2018 effective income tax rate increased to 29.4 percent from 28.7 percent in 2017, reflecting an unfavorable mix of earnings across tax jurisdictions combined with provisional charges related to the Federal Tax Cuts and Jobs Act (TCJA), partially offset by a lower U.S. corporate tax rate and benefits from stock option activity.

During third quarter 2018, Donaldson repurchased 1 million shares, or 0.8 percent, of its common stock at an average price of $44.85 for a total investment of $44.9 million. Year to date, the company has repurchased 2.3 million shares, or 1.8 percent, of its common stock at an average price of $46.18 for a total investment of $107.7 million. Donaldson paid dividends of $23.4 million in third quarter and $70.2 million year to date. In addition, Donaldson made discretionary contributions to its U.S. pension plans of $35 million during third quarter.

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Fiscal 2018 Outlook

Donaldson now expects fiscal 2018 adjusted EPS between $1.97 and $2.01, reflecting an increase of 2 cents when comparing the midpoints of the current and prior guidance ranges. Year-to-date charges related to provisional estimates of the impact from the TCJA result in fiscal 2018 GAAP EPS that is approximately 83 cents lower than adjusted EPS.

Donaldson expects full-year 2018 sales will increase about 15 percent, compared with prior forecast of 13 to 15 percent. The forecast includes benefits from currency translation and acquisitions completed in fiscal 2017 of approximately 3 percent and 1 percent, respectively.

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