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DONALDSON Co Inc (DCI)

Business Summary

Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets, with employees at more than 150 locations on six continents, 79 of which are manufacturing and/or distribution centers . The company operates in highly competitive filtration markets across three reportable segments: Mobile Solutions, Industrial Solutions, and Life Sciences . The U.S. and Canada region contributed 42.5% of fiscal 2026 revenue, followed by EMEA at 29.2%, Asia Pacific at 17.7%, and Latin America at 10.6% . The industry is characterized by competition based on technology, innovation, product performance, service, price, and geographic coverage .

Donaldson believes it is a market leader within many of its product lines, specifically within its Off-Road and On-Road product lines for OEMs and in the Aftermarket business for replacement filters . The Mobile Solutions segment's principal competitors include several large global competitors and many regional competitors, especially in the Aftermarket business . The Industrial Solutions segment's competitors range from large global competitors to a significant number of smaller regional competitors . The Life Sciences segment's principal competitors include several large global competitors as well as niche players .

The company generates revenue through the sale of filtration products and solutions across three segments: Mobile Solutions, Industrial Solutions, and Life Sciences . Mobile Solutions sells to original equipment manufacturers (OEMs) in the construction, mining, agriculture, and transportation end markets and to independent distributors and OEM dealer networks . Industrial Solutions sells through multiple channels including OEMs, distributors, and direct-to-consumer in some markets . Life Sciences primarily sells to large OEMs and directly to various end users . The business model includes both new equipment sales and recurring aftermarket replacement parts, with a significant portion of revenue derived from replacement filters .

The Mobile Solutions segment, representing 62.3% of net sales in fiscal 2026, consists of Off-Road, On-Road, and Aftermarket business units, offering air filtration systems, fuel and lube systems, hydraulic products, and emissions products . Key technologies include PowerCore, Ultra-Web, Synteq XP, and Duramax filters . The Industrial Solutions segment, representing 29.1% of net sales, includes Industrial Air Filtration, Industrial Gases, Industrial Hydraulics, Power Generation, and Aerospace and Defense products . The Life Sciences segment, representing 8.6% of net sales, serves Food and Beverage, Disk Drive, Advanced Membrane Solutions, Microelectronics, and Upstream and Downstream Bioprocessing markets .

During fiscal 2026, the company acquired Filtration Group's Facet Filtration business, which strengthens its position in aerospace and defense and power generation markets . The company also recorded a gain on sale of fixed assets of $9.3 million driven by the sale of land and a building associated with footprint optimization initiatives . There were no share repurchases during the three months ended July 31, 2026, and the company had remaining authorization to repurchase 4.5 million shares under its plan .

Net sales for fiscal 2026 were $3,885.6 million, an increase of 5.3% from $3,690.9 million in fiscal 2025 . Net earnings increased 23.7% to $453.8 million from $367.0 million . Diluted EPS was $3.85 compared to $3.05 in the prior year . Gross margin was 34.6% of net sales, down from 34.8% . Operating income was $599.9 million, or 15.4% of net sales, compared to $495.4 million, or 13.4% of net sales, in the prior year .

Business Outlook & Financial Sufficiency

A key growth vector is the expansion of Life Sciences, particularly in Upstream and Downstream Bioprocessing, which provides bioprocessing equipment, purification technologies, and consumables for the development and manufacture of biologics and advanced therapies, including monoclonal antibodies, mRNA-based therapeutics, viral vectors, and cell and gene therapies . The company is also expanding its presence in aerospace and defense products, supported by the Facet acquisition . Additionally, the company is leveraging technology to improve efficiencies and fuel economies in all end markets within Mobile Solutions .

The company is pursuing strategic acquisitions in high-margin areas to accelerate long-term growth . The Facet acquisition is expected to strengthen the company's position in durable end markets including aerospace and defense and power generation . The company is also expanding its service capabilities and geographic presence through continued acquisition activities in Industrial Solutions .

The company expects ongoing productivity improvements as a key component of its business strategy to contain manufacturing and operating expenses, maintain competitiveness, increase operating efficiencies, and align manufacturing capacity to demand . The company also focuses on cost reduction initiatives including material substitution, process improvement, and product redesigns .

The company's capital allocation priorities include research and development spending, which was $76.1 million in fiscal 2026, or 2.0% of net sales . The company also has a stock repurchase plan with remaining authorization to repurchase 4.5 million shares . The company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations, and total debt, to determine the appropriate level of dividend payouts .

The company faces headwinds from potential new or incremental tariffs, which could disrupt supply chains and impose additional costs . The company also faces risks from geopolitical conflicts, such as the conflict in Iran, which has caused fluctuations in commodity prices and increased volatility in global economic markets . Additionally, the company faces risks from disruptive technologies such as electrification of equipment or other alternative power solutions that could reduce demand for its products .

Management Sentiments & Priorities

Management's message emphasizes the company's three primary strategic priorities: extending market access, expanding technologies and solutions, and pursuing strategic acquisitions . The company is focused on driving profitable growth through these priorities . Management also highlights the company's commitment to innovation and technology leadership, as evidenced by its portfolio of over 3,100 issued patents . The tone is forward-looking, with an emphasis on navigating the evolving trade landscape and geopolitical tensions while continuing to invest in growth areas such as Life Sciences and Aerospace and Defense .

Financial Details

Net sales for fiscal 2026 were $3,885.6 million, compared to $3,690.9 million in fiscal 2025 . Net earnings were $453.8 million, compared to $367.0 million in the prior year . Diluted EPS was $3.85, compared to $3.05 . Gross profit was $1,345.9 million, or 34.6% of net sales, compared to $1,286.2 million, or 34.8% of net sales, in the prior year . Operating income was $599.9 million, or 15.4% of net sales, compared to $495.4 million, or 13.4% of net sales, in the prior year . The effective tax rate was 22.5% in fiscal 2026, compared to 25.4% in fiscal 2025 . The fiscal 2025 results included a $62.0 million loss on impairment of intangible assets, which did not repeat in fiscal 2026 . The Mobile Solutions segment generated net sales of $2,419.7 million, the Industrial Solutions segment generated $1,132.7 million, and the Life Sciences segment generated $333.2 million .

Risk Factors

The company faces significant risks from tariffs and trade barriers, with potential new or incremental tariffs on imports to the U.S. from Mexico, China, and the European Union potentially having a material adverse effect on the business and supply chain . The company also faces risks from geopolitical conflicts, such as the conflict in Iran, which has caused significant fluctuations in commodity prices and increased volatility in global economic markets . The company's growth could be threatened by disruptive technologies, including wider adoption of electrification of equipment or other alternative power solutions, which could reduce or eliminate demand for its products . The company faces risks related to the Facet acquisition, including potential undisclosed liabilities and the risk of future impairment charges on the $587.4 million of goodwill and $225.6 million in intangible assets acquired . Additionally, the company's operations are subject to risks from supply chain disruptions, including unavailable raw materials and significant demand fluctuations .

References

  1. [1] Item 1, Business — Overview
  2. [2] Item 1, Business — Competition
  3. [3] Item 1, Business — Overview
  4. [4] Item 1, Business — Competition
  5. [5] Item 1, Business — Competition
  6. [6] Item 1, Business — Competition
  7. [7] Item 1, Business — Competition
  8. [8] Item 1, Business — Competition
  9. [9] Item 1, Business — Reportable Segments
  10. [10] Item 1, Business — Reportable Segments
  11. [11] Item 1, Business — Reportable Segments
  12. [12] Item 1, Business — Reportable Segments
  13. [13] Item 1, Business — Reportable Segments
  14. [14] Item 1, Business — Reportable Segments
  15. [15] Item 1, Business — Diverse Product Groups
  16. [16] Item 1, Business — Reportable Segments
  17. [17] Item 1, Business — Reportable Segments
  18. [18] Item 1, Business — Aerospace and Defense
  19. [19] Item 7, MD&A — Gain on Sale of Fixed Assets
  20. [20] Item 5, Market for Registrant's Common Equity — Issuer Purchases
  21. [21] Item 7, MD&A — Consolidated Results of Operations
  22. [22] Item 7, MD&A — Net Earnings
  23. [23] Item 7, MD&A — Net Earnings
  24. [24] Item 7, MD&A — Cost of Sales and Gross Margin
  25. [25] Item 7, MD&A — Operating Results
  26. [26] Item 1, Business — Upstream and Downstream Bioprocessing
  27. [27] Item 1, Business — Aerospace and Defense
  28. [28] Item 1, Business — Key Growth Drivers
  29. [29] Item 1, Business — Strategic Priorities
  30. [30] Item 1, Business — Aerospace and Defense
  31. [31] Item 1, Business — Industrial Air Filtration
  32. [32] Item 1A, Risk Factors — Productivity Improvements
  33. [33] Item 1, Business — Raw Materials
  34. [34] Item 1, Business — Research and Development
  35. [35] Item 5, Market for Registrant's Common Equity — Issuer Purchases
  36. [36] Item 5, Market for Registrant's Common Equity
  37. [37] Item 1A, Risk Factors — Tariffs
  38. [38] Item 7, MD&A — Operating Environment
  39. [39] Item 1A, Risk Factors — Evolving Customer Needs
  40. [40] Item 1A, Risk Factors — Tariffs
  41. [41] Item 7, MD&A — Operating Environment
  42. [42] Item 1A, Risk Factors — Evolving Customer Needs
  43. [43] Item 1A, Risk Factors — Facet Filtration Acquisition
  44. [44] Item 1A, Risk Factors — Supply Chain
  45. [45] Item 1, Business — Strategic Priorities
  46. [46] Item 1, Business — Strategic Priorities
  47. [47] Item 1, Business — Intellectual Property
  48. [48] Item 7, MD&A — Operating Environment
  49. [49] Item 7, MD&A — Consolidated Results of Operations
  50. [50] Item 7, MD&A — Net Earnings
  51. [51] Item 7, MD&A — Net Earnings
  52. [52] Item 7, MD&A — Cost of Sales and Gross Margin
  53. [53] Item 7, MD&A — Operating Results
  54. [54] Item 7, MD&A — Income Taxes
  55. [55] Item 7, MD&A — Loss on Impairment of Intangible Assets
  56. [56] Item 7, MD&A — Net Sales by Segment

Analysis on 9/25/2026