Donaldson FY 4Q16 Earnings Call Notes

Donaldson Company’s (DCI) CEO Tod Carpenter on Q4 2016 Results

The impact form destocking is becoming less significant

“Overall, we still believe the impact from destocking is becoming less significant; however, there is still enough variability in week-to-week ordering to suggest that both off- and on-road customers have yet to find a stable bottom.”

Expect continued declines in fiscal 2017

“As we transition to fiscal 2017, our performance on the overall market conditions is still somewhat guarded. We expect that global production of heavy-duty equipment will decline across all of our end markets.”

Decline in agriculture, mining and construction equipment

“Within off-road, we estimate that production of agriculture and mining equipment will continue their multitier slowdowns with declines of another 5% to 10% each. We also expect the year-over-year decline in production of construction equipment, albeit in a bit more modest, flat to down 5% range.”

Pressures are not new, although pace of decline has moderated

“There are a wide range of factors pressuring these off-road markets but they’re not new. For example, depressed commodity prices, the impact from the oil and gas slowdown, and a decline in overall infrastructure spending has been affecting production for some time now. We have definitely seen a moderating pace of decline but it is clear to us that there is still some uncertainty.”

China has been difficult but it’s important

“China’s been difficult due to their end markets and their clear GDP pressures. We have restructured China to align our company with the realities of that market. However, we still believe in China and it’s a very important market for our long-term strategy. We continue to invest in China to make sure that we press forward with our innovated products both on the Industrial and the Engine side, and we continue to have wins in China. So long term, we still stay the course with China because we believe in it and it’s important for us.”

I’m encouraged

“I use the word encouraged because it’s been a tough slog for the last 18 months and it’s been a walk down that has been tough to get through. And I think as I look forward, the range of possible outcomes has certainly narrowed significantly for our company. And so the encouragement is that while I’m not ready to call bottom, I am encouraged by the fact that we’re a little bit more predictable than we have been at any time in the last 18 months.”

Scott Robinson

Repurchasing 2-3% of our outstanding shares

“In terms of capital deployment, we remain focused on our core priorities; invest in the business, pay dividends, and to the extent our balance sheet allows repurchase shares. We are forecasting capital expenditures between 70 million and 80 million and we expect to repurchase between 2% and 3% of our outstanding shares.”

Expecting EPS between $1.50 and $1.66

“Altogether, we expect fiscal 2017 earnings per share between $1.50 and a $1.66. As of today, we are not forecasting any impact from adjusting items, so GAAP and adjusted EPS are expected to be one and the same.”