Donaldson stock slips as margin pressure clouds outlook

[Donaldson Company Exterior and Logo]
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Donaldson (NYSE:DCI [https://seekingalpha.com/symbol/DCI]) shares fell 3.2% in premarket trading Wednesday after the filtration products maker reported [https://seekingalpha.com/news/4489395-donaldson-non-gaap-eps-of-1_03-beats-by-0_01-revenue-of-981m-beats-by-29_41m] better-than-expected quarterly earnings and revenue but revealed ongoing margin pressure and a cautious outlook for fiscal 2026.

For the fiscal fourth quarter, Donaldson posted adjusted earnings of $1.03 a share, edging past Wall Street’s $1.02 forecast, while sales rose 4.8% to $981 million, ahead of estimates of $951.6 million. The company returned $95 million to shareholders through buybacks and dividends during the quarter.

Full-year adjusted earnings came in at $3.68 a share, up 7.6% from the prior year, on record sales of $3.7 billion. However, earnings according to generally accepted accounting principles dropped nearly 10% to $3.05 a share because of tariff-related cost pressures, restructuring charges and a higher tax rate.

The company also reported weaker underlying profitability. Gross margin contracted to 34.5% from 35.8% a year ago, weighed down by tariffs and inventory valuation headwinds. Adjusted gross margin also declined, while operating income margin fell 10 basis points to 15.5% even as sales rose. Interest expense climbed on higher rates, and the effective tax rate rose to 23.6% from 21.3%.

GUIDANCE FOR FISCAL 2026

Looking ahead, Donaldson projected fiscal 2026 sales of $3.8 billion, up 2.7% and mostly in line with Wall Street’s $3.79 billion consensus, and guided adjusted earnings per share to about $4.00, slightly above expectations of $3.89. Management also forecast higher operating margins, aided by cost efficiency programs and continued share repurchases.

RESULTS BY BUSINESS SEGMENT

Segment results were mixed: Life sciences sales surged 14% and industrial filtration grew double digits, but aerospace and defense sales fell 6% and on-road revenue plunged 20%. The company acknowledged tariff costs and persistent weakness in its on-road segment as ongoing challenges.

“I am confident in the value Donaldson can create for all stakeholders, and our results in fiscal 2025 combined with our expectations for fiscal 2026 are clear signals of our strength,” Tod Carpenter, chairman, president and chief executive of the company, said in a statement.

MORE ON DONALDSON

* Donaldson Company, Inc. (DCI) Q3 2025 Earnings Conference Call Transcript [https://seekingalpha.com/article/4792072-donaldson-company-inc-dci-q3-2025-earnings-conference-call-transcript]
* Donaldson Company: Maintaining My Stance As Earnings Near [https://seekingalpha.com/article/4791468-donaldson-company-maintaining-my-stance-as-earnings-near]
* Donaldson Q4 2025 Earnings Preview [https://seekingalpha.com/news/4489292-donaldson-q4-2025-earnings-preview]
* Donaldson raises EPS outlook for 2025 and announces COO appointment while maintaining record margin targets [https://seekingalpha.com/news/4455109-donaldson-raises-eps-outlook-for-2025-and-announces-coo-appointment-while-maintaining-record]
* Seeking Alpha’s Quant Rating on Donaldson [https://seekingalpha.com/symbol/DCI/ratings/quant-ratings]