Bloomington-based Donaldson lowers revenue forecast due to coronavirus, other market disruptions

Donaldson Co. said uncertainties because of the coronavirus outbreak and other disruptions could affect sales for the rest of the year. Already, second-quarter sales were down 6%, affected greatly by the decline of the tractor-trailer market.

Still, the Bloomington-based maker of filtration products exceeded its second-quarter earnings expectations, with net income of $64.4 million, up 7% from the same period a year ago. Earnings per share were 50 cents, up from 46 cents.

"Strong gross margin performance and disciplined expense management contributed to record second quarter net income, despite a softer-than-expected demand environment," said Chief Executive Tod Carpenter in a statement. "Our margin expansion initiatives mitigated the profit impact from lower sales of new equipment and replacement parts, and favorability in nonoperating income."

Some of the biggest sales declines in Donaldson's second quarter were from its engine-products segments, particularly sales of parts for Class 8 trucks, the largest and heaviest tractor-trailers. Sales for the on-road unit under engine products were off 21%.

Navistar International, which makes large trucks, reported this week a loss of $36 million for its first quarter, with revenue down nearly 25%. The company said new orders for heavy trucks have collapsed with Class 8 truck orders down 83% during the first quarter.

Already the industry was facing a decline. The trade publication FreightWaves reported that U.S. orders for heavy trucks that were in but not yet built at the end of 2019 were 123,000, down from 297,000 — a record — at the end of 2018, according to ACT Research. Thousands of layoffs occurred during the fourth quarter, including 1,300 workers from Navistar in December.

Donaldson's industrial-products segment saw a decrease of 3.5%, but unexpectedly strong demand from disk-drive companies and good demand from the automotive market for venting products used in batteries and powertrain apparatus. The disk-drive and automotive sales fall within the special-applications category, which saw a sales increase of almost 11% in the quarter.

In reducing the sales guidance for the remainder of the fiscal year, Carpenter noted the uncertainties around the coronavirus outbreak and said that the company would focus on the health and safety of its employees across the world through coordination and collaboration. And despite political and economic uncertainties, he emphasized the company would remain focused on its long-term goals.

The global manufacturer of industrial-filtration products has about 14,000 employees in more than 40 countries, including operations in Wuxi, China. Carpenter said on the company's earnings call that none of Donaldson's employees had contracted the virus but the company was responding where appropriate with work-from-home flexibility, increased cleaning and personal protection supplies and rethinking travel plans.

The company is now expecting its fiscal 2020 sales to be down between 3% and 7% from the $2.8 billion it recorded in fiscal 2019. Donaldson's fiscal year ends July 31.

The company also lowered its earnings-per-share range and now expects to earn between $2.05 and $2.19 per share in fiscal 2020.

The updated guidance does not reflect the pending divestiture of the Exhaust and Emissions business announced last week. The company has an agreement to sell that nonfiltration business to Wisconsin-based Nelson Global Products; the deal is expected to close during Donaldson's third quarter.

Shares of Donaldson closed at $48.06, down less than 1% Thursday amid steep losses in the overall market. Shares of Donaldson have been trading between $43.84 and $58.32 over the previous 52 weeks.

Patrick Kennedy • 612-673-7926