Uncertainty surrounding trade and other factors has Bloomington-based Donaldson cautious about predicting results for next fiscal year because officials believe demand for its industrial filters will be "uneven."
Bloomington-based Donaldson expects 'uneven' demand for its filters because of trade uncertainty
Filtration giant boosts R&D to increase profit margins as buyers grow more cautious.
September 6, 2019 at 12:12AM
Sales for this fiscal year, announced on Thursday, set a record, but the industrial-filtration company's forecast for next year's revenue is a range from a 2% decline to a 4% increase.
"It is likely that uncertainty related to global trade and the political environment will keep our customers cautious, and some of our engine-related end markets are nearing the peak of their economic cycle," said CEO Tod Carpenter in a release.
The U.S. and China are in the middle of a trade war that has raised tariffs, at least temporarily, on both sides. Economic indicators on the strength of the U.S. economy are also mixed, with some pointing to a downturn.
Carpenter presented a plan to tackle the uncertain environment and to increase the company's gross margin in the year ahead that leans heavily on its long-term strategy of being a technology-led filtration company that develops innovative new products.
"Our focus this year is navigating uneven demand and improving gross margin," Carpenter told analysts on the company's earnings call.
New-product introductions help boost demand and provide for higher margins than its replacement-parts business. Carpenter said the company will spend $65 million on research and development (R&D) in 2020, a 7% increase over the amount spent last year.
Earlier this year, the company broke ground on a new R&D center on its Bloomington campus that should be operational next year.
"Material-science capabilities are the biggest opportunity for us," Carpenter said.
Material-science advances from that center are expected to make a long-term difference throughout Donaldson's product portfolio.
Donaldson's profits for the fourth quarter were $58 million, down from $102.4 million in the same period a year ago. Adjusted for one-time events, earnings were 61 cents a share, a penny above analysts' expectations and a 5.2% increase over last year.
Sales were up slightly to $726.9 million, beating expectations.
For the year, the company hit records for both profits and revenue. Earnings were up 48.2% to $267.2 million. Sales were up 4% to $2.85 billion.
Shares closed Thursday at $50.98, up almost 9%. Year-to-date shares were up 17.5%.
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