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    DCI
    Earnings call· Jan 2026(Q2 FY26)

    DONALDSON Co Q2 FY26 earnings call DCI

    Feb 26, 2026 Source

    Executive summary

    Donaldson Company Q2 FY26 — Record Sales and Strategic Acquisition

    Donaldson Company achieved record sales in Q2 FY26, driven by strong demand in Mobile Solutions and Life Sciences, and announced the strategic acquisition of Facet. Despite short-term operational challenges impacting gross and operating margins, the company reaffirmed its full-year outlook for record sales and EPS, anticipating a strong second half recovery. The leadership transition to Rich Lewis is underway, with a continued focus on technology-led filtration solutions and disciplined capital allocation.

    Highlights

    5

    • Record sales of $896 million in Q2 FY26, up 3% year-over-year.

    • Life Sciences sales increased 16% year-over-year, driven by Food and Beverage and Disk Drive.

    • Mobile Solutions aftermarket independent channel showed high single-digit growth.

    • Acquisition of Facet adds nearly $110 million in sales with above-average gross and EBITDA margins.

    • Full-year FY26 outlook maintains record sales of approximately $3.8 billion and adjusted EPS of $3.97, up 8%.

    Concerns

    5

    • Operating margin declined 120 basis points to 14% in Q2 FY26, down from 15.2% a year ago.

    • Gross margin was 33.7%, down 150 basis points from prior year, impacted by 60 bps from volume deleveraging, 40 bps from Power Generation operational inefficiencies, and 30 bps from footprint optimization costs.

    • Industrial Solutions sales forecast revised down to a decline of 1% to an increase of 3% (from 2% to 6% previously).

    • Aerospace and Defense sales decreased 19% year-over-year due to project timing and supply chain challenges.

    • No share repurchases expected for the remainder of FY26 due to the Facet acquisition.

    Guidance & targets

    17
    CategoryTargetConfidence
    Consolidated Sales Growth
    1% to 5%
    high materiality
    High
    Full-year Sales
    approximately $3.8 billion
    high materiality
    High
    Operating Margin
    16% and 16.4%
    high materiality
    Medium
    Adjusted EPS
    $3.93 and $4.01 per share
    high materiality
    Medium
    Free Cash Flow Conversion
    approximately 90%
    medium materiality
    High
    Capital Expenditures
    $60 million and $75 million
    medium materiality
    High
    Mobile Solutions Sales Growth
    2% and 6%
    medium materiality
    High
    Mobile Solutions Aftermarket Sales Growth
    mid-single digits
    medium materiality
    High
    Mobile Solutions Off-road Sales Growth
    mid-single digits
    medium materiality
    High
    Mobile Solutions On-road Sales Growth
    flat
    medium materiality
    High
    Industrial Solutions Sales Growth
    decline of 1% and an increase of 3%
    high materiality
    Medium
    Industrial Filtration Solutions (IFS) Sales Growth
    low single digits
    medium materiality
    Medium
    Aerospace and Defense Sales Growth
    decline mid-single digits
    medium materiality
    Medium
    Life Sciences Sales Growth
    5% and 9%
    medium materiality
    High
    Life Sciences Pretax Margin
    mid- to high single digits
    medium materiality
    High
    Share Repurchase
    do not expect to repurchase additional shares
    medium materiality
    High
    Truck Builds
    increased
    low materiality
    Low

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Mobile Solutions
    Sales up due to currency benefits. Aftermarket growth driven by independent channel, offset by OE channel declines. Off-road sales benefited from cycling weak prior-year conditions in agriculture. On-Road sales declined due to muted global truck production. China sales marked sixth consecutive quarter of growth.
    Aftermarket sales: $447 millionAftermarket sales growth: 1%Independent channel growth: high single-digitOff-road sales: $86 millionOff-road sales growth: 8%On-Road sales: $23 millionOn-Road sales growth: -9%China sales growth: 18%
    		$557 million2%—16.8% pretax profit margin
    Industrial Solutions
    Sales increase driven by currency benefits. IFS growth from continued strength in Power Generation, particularly in North America and Europe. Aerospace and Defense sales declined due to project timing, primarily in defense.
    IFS sales growth: 7%Aerospace and Defense sales growth: -19%
    		$260 million2%—11.9% pretax profit margin
    Life Sciences
    Robust growth largely from Food and Beverage and Disk Drive businesses. New equipment sales in Food and Beverage grew substantially across all regions. Pretax margin improved significantly from a loss a year ago due to strong sales and focused expense structure.
    		$80 million16%—9.3% pretax profit margin

    Operational metrics

    22
    Non-GAAP Pretax Charges
    $6.7 million
    Q2 FY26

    Excluded from non-GAAP results.

    Non-GAAP Pretax Charges
    $6.6 million
    Q2 FY25

    Prior year comparison for non-GAAP adjustments.

    Adjusted EPS
    $0.83flat YoY
    Q2 FY26

    Flat versus record achieved in 2025.

    Operating Margin
    14%down from 15.2% YoY
    Q2 FY26

    Declined due to gross margin pressure.

    Gross Margin
    33.7%down 150 bps YoY
    Q2 FY26

    Below expectations due to discrete operational issues.

    Operating Expenses as % of Sales
    19.7%improved from 20% YoY
    Q2 FY26

    Reflects benefits from structural cost optimization and continued expense discipline.

    Mobile Solutions Pretax Profit Margin
    16.8%down 60 bps YoY
    Q2 FY26

    Primarily due to volume deleveraging in aftermarket OE channel and footprint optimization efforts.

    Industrial Solutions Pretax Margin
    11.9%down from 16.1% in 2025
    Q2 FY26

    Stemming from operational inefficiencies and footprint optimization costs.

    Life Sciences Pretax Margin
    9.3%up from -1% YoY
    Q2 FY26

    Driven by strong sales in higher-margin Food and Beverage and Disk Drive and focused expense structure.

    Net Leverage Ratio
    0.7x
    current

    Balance sheet strength.

    Net Leverage Ratio (post-Facet acquisition)
    1.7x
    pro forma

    Still leaves ample financial flexibility.

    Facet Sales Contribution
    $110 million
    annual

    Expected annual sales from the Facet acquisition.

    Facet Recurring Revenue
    70%
    annual

    Percentage of Facet's revenue driven by recurring regulated replacement part sales.

    Power Generation Gross Margin Headwind
    40 bps
    Q2 FY26

    Due to protracted startup process in Mexico and surging demand.

    Footprint Optimization Gross Margin Pressure
    30 bps
    Q2 FY26

    From final stages of a plant closure in the U.S. and associated production transfer.

    Volume Deleveraging Gross Margin Decline
    60 bps
    Q2 FY26

    Due to lower volume in Mobile and Industrial segments.

    Incremental Margin
    35%
    FY26

    Approaching 35% at the midpoint of the full year operating margin forecast.

    Currency Translation Contribution to Growth
    1%
    FY26

    Expected contribution to consolidated sales growth.

    Pricing Contribution to Growth
    1%
    FY26

    Expected contribution to consolidated sales growth.

    Share Repurchase
    1.2%
    YTD

    Repurchased to offset dilution.

    Dividend Payout Streak
    70th year
    CY25

    70th consecutive year of paying dividends.

    Dividend Increase Streak
    30th year
    CY25

    30th consecutive year of increasing dividends.

    Industry KPIs

    7
    MetricValueDetails
    Capacity expansionsignificantly
    Parts aftermarket business1%%
    Data center prime power demandvery strong
    Dealer inventory months of supply—
    Incremental margin operating leverage35%%
    Order backlog order intake by segmentup over 20%%
    Industry production market size forecastsnear bottom of the cycle

    Orderbook & backlog

    2
    Aerospace and Defense Backlogup over 20%post-October

    up over 20%

    Orders coming in nicely, but supply chain challenges impact ability to ship. Significant step-up in second half expected.

    Power Generation Bookingsbooked through end of fiscalQ2 FY26

    Loaded fairly solid bookings into the next 2 fiscal years. Demand is very strong and broad-based.

    Deals & partnerships

    1
    FacetAcquisition of a company providing high-performance fuel and fluid filtration capabilities for mission-critical applications.

    Largest acquisition in company history. Broadens exposure to durable end markets such as Aerospace and Defense and Power Generation. Low capital intensity and strong cash flows. Culturally good fit. Historical growth rates are high single digits.

    Risks & headwinds

    5
    Industrial segment execution challengesQ2 FY26, expected to improve in H2 FY26

    Gross margin impacted by 40 bps from Power Generation operational inefficiencies and 30 bps from footprint optimization costs.

    Mitigation: Plans in place to accelerate improvement in Mexico facility; footprint optimization projects expected to be completed by fiscal year-end, with cost benefits realized later in FY26 and into FY27.

    Volume deleveragingQ2 FY26, expected to abate in H2 FY26

    60 bps impact on gross margin in Q2 FY26.

    Mitigation: Expected to abate based on strong backlogs and leverage from typical second half sales step-up.

    Supply chain challenges in Aerospace and DefenseOngoing, impacting H1 FY26

    Aerospace and Defense sales down 19% YoY in Q2 FY26.

    Mitigation: Working with suppliers, trying to qualify new suppliers, focusing on shipping existing order book. Expect significant step-up in second half.

    Macroeconomic uncertainty impacting Industrial SolutionsFY26

    Industrial Solutions sales forecast revised down; IFS sales expected to grow low single digits (down from mid-single digits). Americas market for new equipment is soft.

    Mitigation: Monitoring closely, aftermarket performing well, focusing on capital expenditure decisions of customers to break free. Expecting improvement in second half.

    Muted global truck productionFY26

    On-Road sales decreased 9% in Q2 FY26; expected to be flat for FY26.

    Mitigation: Monitoring closely for signs of rebound; some manufacturers signal increased builds in CY26 (FY27). Company is gaining share with OEMs.

    What to watch in Q3 FY26

    5

    Industrial Solutions Pretax Operating Margin

    second half of FY26
    Current11.9%
    Targetnotably step up

    Why it matters

    This will indicate the effectiveness of operational improvements and leverage on higher sales in the Industrial segment.

    With improving plant efficiency and benefits from leverage on higher sales, we expect Industrial pretax operating margin to step up notably in the second half.

    Q&A highlights

    6

    Why is A&D guided down for FY26, is it project timing or demand? How does this compare to Facet's performance?

    A&D's decline is due to timing issues on lumpy military projects and ongoing supply chain challenges, despite strong order intake (backlog up over 20% post-October). Management expects a significant step-up in the second half. Facet plays in different market segments (military fixed-wing, marine) compared to Donaldson's ground vehicle focus.

    “So when you think about A&D, we're coming off record sales levels the last couple of years. And clearly, we've had suppressed revenue in the first half of the year. It's really a combination of two things. So we've got some timing issues on some of our military projects. These can be lumpy. We also have supply chain challenges as well that are ongoing.”

    asked by Oliver Z Jiang · answered by Richard Lewis

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Acquisition of Facet

    Donaldson announced the acquisition of Facet, the largest in company history, which complements and expands its product portfolio with high-performance fuel and fluid filtration capabilities. Facet adds nearly $110 million in sales, with approximately 70% driven by recurring replacement part sales, and boasts gross and EBITDA margins significantly above Donaldson's current company average. The acquisition is expected to close in the next couple of quarters and is seen as strategically and financially strengthening the company, with high single-digit historical growth rates and potential for growth synergies.

    02

    Operational Headwinds and Footprint Optimization

    The company faced short-term execution challenges in Q2 FY26, particularly in the Industrial segment, leading to gross margin pressure. This included 40 basis points of headwind from a protracted startup process for large turbine systems production in Mexico and 30 basis points from a plant closure in the U.S. as part of ongoing footprint optimization initiatives. While these projects are complex and some will conclude by fiscal year-end, the full cost benefits are expected to be realized in FY27, establishing long-term efficiencies.

    03

    Mobile Solutions Performance and Outlook

    Mobile Solutions sales increased 2% in Q2 FY26, driven by currency benefits. Aftermarket sales were up 1%, with strong high single-digit growth in the independent channel offset by OE channel declines. Off-road sales increased 8%, cycling weak prior-year conditions, while On-Road sales decreased 9% due to muted global truck production. The full-year forecast for Mobile Solutions was raised to 2-6% growth, primarily due to favorable currency and strength in the independent aftermarket.

    04

    Industrial Solutions and A&D Dynamics

    Industrial Solutions sales grew 2% in Q2 FY26, primarily from currency benefits. Industrial Filtration Solutions (IFS) sales increased 7% due to strength in Power Generation, particularly in North America and Europe, driven by data center demand. However, Aerospace and Defense sales declined 19% due to project timing and supply chain issues. The full-year sales forecast for Industrial Solutions was revised down, reflecting declines in dust collection, industrial hydraulics, and A&D program timing, despite strong order intake and backlog in Power Gen.

    05

    Life Sciences Segment Growth

    Life Sciences continued its strong performance, with sales increasing 16% year-over-year in Q2 FY26. This robust growth was largely driven by Food and Beverage and Disk Drive businesses. New equipment sales in Food and Beverage grew substantially across all regions, setting the stage for future replacement parts sales. The company is also winning in emerging areas like liquid cooling for data centers. The full-year sales forecast for Life Sciences was increased to 5-9% growth, reflecting strong momentum and favorable currency.

    06

    Capital Allocation Priorities

    Donaldson's capital allocation priorities remain consistent: first, reinvestment into the company for R&D and working capital; second, disciplined M&A, exemplified by the Facet acquisition; third, dividends, maintaining its status as an S&P High-Yield Dividend Aristocrat with 30 consecutive years of increases; and fourth, share repurchases, which are currently paused to prioritize debt paydown following the Facet acquisition. The company repurchased 1.2% of shares year-to-date to offset dilution.

    AI-generated summary of the company’s earnings call. Not investment advice.