Donaldson reports record $358.8M annual profit, touts new acquisition and partnership

Bloomington-based Donaldson made a key acquisition late in its fourth quarter to support its recently created life sciences sector and then entered into a big-name partnership just after the fiscal year ended.

But the company didn't need those blockbuster moves to see a record annual profit.

The company's traditional business of supplying technology-led filtration products for industrial and mobile applications helped Donaldson earn $358.8 million or $2.90 a share. Compared with $332.8 million or $2.66 a share last year, earnings increased 7.8% and adjusted earnings per share (EPS) 9%.

For just the fourth quarter, the company made 75 cents a share, down 7.4% from a year ago on revenue of $879.5 million, down 1.2%. EPS for the fourth quarter was 78 cents and $3.04 for the year compared with 84 cents and $2.68 cents a share in the same period a year ago. Adjusted EPS for the quarter and year met analysts' expectations.

Revenue for the year grew 3.8% to $3.4 billion. Donaldson's revenue includes a mix of first-fit projects, but approximately 75% of revenue comes from the sale of aftermarket replacement parts.

The life sciences sector is imperative to Donaldson's future, as the company expects categories in that sector to grow faster and have higher margins than their traditional business.

Donaldson officials said during their investor day conference earlier this year they'd continue to make investments in their new life sciences segment. On June 29, they announced they acquired Univercells Technologies, which provides biomanufacturing technologies for companies that produce cell and gene therapies.

It's an important addition and the largest acquisition Donaldson has made to its life sciences in the past 18 months.

"Univercells Technologies' engineered systems provide close adjacencies with our previous life sciences acquisitions as well as with our growing organic product suite," Tod Carpenter, chairman, president and chief executive of Donaldson, said in a news release.

"It makes a lot of strategic sense for them to grow in the life sciences sector," said Matt Arnold, an industrials analyst with Edward Jones who covers Donaldson. "That deal, while small, should offer some nice growth potential down the road as it scales up and becomes more meaningful."

Revenue for the life sciences segment decreased 11.9% from the previous year, but it was mainly due to softness in the legacy disk drive market where it makes products to protect the critical parts used in cloud computing, cellular networks, gaming, streaming, storage and sharing.

Replacement part revenue was flat for fiscal year 2023 at $1.6 billion, but those numbers could get a boost next year from a partnership with NAPA Auto Parts announced in August. Donaldson will supply NAPA Gold heavy-duty air filtration products to NAPA's network of 6,000 stores and 18,000 auto care and collision centers across the United States. They are essentially private-branded versions of Donaldson's filters.