Donaldson (DCI) Q4 Earnings: What's In Store For The Stock?
Zacks Investment Research | Sep 05, 2016 09:23PM ET
Donaldson Company, Inc. (NYSE:DCI) is set to report fourth-quarter and full-year fiscal 2016 results, before the opening bell on Sep 8.
Last quarter, the company posted a positive earnings surprise of 10.3%. Donaldson managed to beat earnings estimates thrice in the trailing four quarters with an average positive surprise of 2.1%.
Factors to Consider
Factors including modest “first-fit program” wins and consistent geographic expansion are expected to act as key growth drivers for Donaldson’s fiscal fourth-quarter results. Concerted efforts undertaken by the company to fortify its hold in Latin America and China are paying off. These are believed to boost top-line performance in the quarter to be reported.
Moreover, Donaldson’s constant deployment of state-of-the-art technologies to secure first-fit programs has been an integral part of its growth strategy. In this regard, we believe that the Down Flow Evolution family of dust collectors, launched a little more than a year ago in the U.S., will act as a prominent top-line growth driver. This product forayed into the Asian markets earlier this year, reporting double-digit sales during fiscal third quarter.
In addition, stellar market traction of PowerCore filtration offerings and liquid platform products are estimated to drive revenues. Notably, robust sales of Synteq XP filters, from the liquid platform family, in emerging countries such as China, India and Brazil as well as developed markets have boosted the company’s sales over the past few quarters.
Also, Donaldson’s diligent restructuring activities, which significantly enhanced operational efficiency, are expected to be conducive to bottom-line performance for the quarter to be reported. Donaldson benefited significantly from restructuring actions that were implemented over the last 12 months. Restructuring benefits and other cost controls enabled the company to increase sales sequentially by 10% for fiscal third quarter. We also believe that the recently completed ERP implementation program and other cost-cutting initiatives will improve key financials for the quarter under review and beyond.
Despite these positives, recent macroeconomic sluggishness is expected to dampen growth significantly for the fiscal fourth quarter. Factors like a decline in heavy-duty on-road transportation business as well as sluggishness in the global agriculture, mining equipment and construction markets are anticipated to play spoilsport for Engine Products sales. Moreover, waning U.S. defense spending and softness in the commercial aerospace add to Donaldson’s concerns.
Additionally, Industrial Products are likely to take a beating from project deferrals and volatility in global demand. Decline in disk drive, membrane and semiconductor businesses are adding to Donaldson’s woes. Also, slowdown in helicopter business is expected to adversely affect commercial aerospace products sales. This, in turn, is likely to limit top-line growth in the quarter to be reported.
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