US ▾
DCI
Earnings call · Jul 2026 (Q4 FY26)

DONALDSON Co Q4 FY26 earnings call DCI

Aug 26, 2026 Source

Executive summary

Donaldson Company Q4 FY26 — Record Sales and Operating Margin, Strong FY27 Outlook

Donaldson Company concluded fiscal 2026 with record sales and operating margin, driven by strong execution and the strategic Facet acquisition. The company delivered robust Q4 results, marked by significant gross margin expansion and operational efficiency improvements. Despite some acute operational headwinds in the Industrial segment, management provided an optimistic fiscal 2027 outlook, forecasting continued growth and margin expansion, underpinned by healthy backlogs and a focused capital allocation strategy.

Highlights

5

  • Fiscal 2026 sales reached an all-time high of $3.9 billion, a 5% increase versus 2025.

  • Fiscal 2026 EPS grew 8% to a record $3.98.

  • Q4 sales surpassed $1 billion for the first time, growing 8% above prior year.

  • Q4 operating margin was 17.5%, up 110 basis points over prior year and a record high.

  • Q4 adjusted EPS was $1.15, 12% above 2025.

Concerns

4

  • The Facet acquisition diluted Q4 EPS by $0.06.

  • Industrial Solutions pretax margin was 16.4%, 450 basis points below prior year.

  • Power generation operational inefficiencies caused about 40 basis points of gross margin pressure in Q4.

  • Organic aerospace and defense sales declined 3% in Q4 due to persistent supply chain constraints.

Guidance & targets

CategoryTargetConfidence
Full-year 2027 Total Sales Growth
5.5% to 9.5%
high materiality
High
Full-year 2027 Operating Margin
16.6% to 17.2%
high materiality
High
Full-year 2027 Adjusted EPS
$4.22 to $4.38
high materiality
High
Full-year 2027 Free Cash Flow Conversion
95% to 105%
medium materiality
High
Full-year 2027 Mobile Solutions Sales Growth
2% to 6%
medium materiality
Medium
Full-year 2027 Industrial Solutions Sales Growth
Mid-teens
medium materiality
Medium
Full-year 2027 Life Sciences Sales Growth
7% to 11%
medium materiality
Medium
Full-year 2027 Capital Expenditures
$70 million to $90 million
medium materiality
High
Full-year 2027 Interest Expense
$55 million and $60 million
medium materiality
High
Power Generation Margin Recovery
Fully recover
medium materiality
High
Footprint Optimization Annualized Savings
About $10 million
low materiality
High
Share Repurchase
About 1% of shares outstanding
low materiality
Medium

Segment performance

SegmentRevenueYoYQoQMargin
Mobile Solutions
Sales driven by strong volume growth and pricing. Aftermarket sales saw increases across all regions and channels, with double-digit growth in the independent channel. Off-Road sales were flat with construction strength offsetting muted agriculture. On-Road sales increased as truck production ramped in the U.S. and Europe. Pretax margin was a record, above internal expectations, due to volume leverage, pricing, and aftermarket sales strength.
Aftermarket sales: $512 millionAftermarket sales growth: 9%Independent channel aftermarket sales growth: Double digitsOff-Road sales: $95 millionOff-Road sales growth: FlatOn-Road sales: $29 millionOn-Road sales growth: 9%China sales growth: 27%China OE replacement part sales growth: Nearly 40%
$635 million8%—21.3% pretax margin
Industrial Solutions
Sales growth driven by Facet inclusion. Aerospace and Defense sales saw significant growth with Facet, but organic sales declined due to supply chain constraints. IFS sales declined due to lower dust collection new equipment volumes, partially offset by robust power generation new equipment. Pretax margin was pressured by Facet expenses, organic deleveraging, and power generation production shifts, but improved sequentially.
Facet sales contribution to growth: $30 million (10 percentage points)Aerospace and Defense sales (incl. Facet): $76 millionAerospace and Defense sales growth (incl. Facet): 61%Organic Aerospace and Defense sales growth: -3%IFS sales: $257 millionIFS sales growth: -2%IFS replacement parts sales growth: Low single digitsIFS replacement parts as % of total IFS sales: 51%
$334 million8%—16.4% pretax margin
Life Sciences
Sales increase largely a result of double-digit growth in Disk Drive, supported by strong market conditions and demand for newer technologies. Solid food and beverage sales also contributed. Pretax margin was above internal expectations, up significantly, due to volume leverage from higher-margin businesses and continued expense discipline. The segment will operate as 'Process Filtration' (Food & Bev + Microelectronics) starting Q1 FY27.
Disk Drive sales growth: Double-digitFood and Beverage sales: Solid
$90 million10%—11.9% pretax margin

Orderbook & backlog

Power Generation Order Book Robust Q4 FY26

Booked through fiscal 2027 and into fiscal 2028.

Aerospace and Defense Backlogs Elevated Q4 FY26

Company is working to resolve supply chain issues to deliver on these backlogs.

Company-wide Order Volumes Robust Entering FY27

Company began fiscal 2027 with robust order volumes and healthy backlogs.

Product announcements

ProductTypeDetails
ArmorSeal technologyupdate
Stratos Mist Collectorupdate
LifeTec high-loading performance filterupdate
HAMR-related Disk Drive technologyupdate
Liquid cooling capabilitiesupdate

Deals & partnerships

Facet Filtration Largest acquisition in company history, expanding strategic position in durable end markets including aerospace and defense, and power generation.

Acquired on May 4, 2026. Integration progress includes technical collaboration and synergy achievement. Over $100 million of Facet-related debt already paid down.

Risks & headwinds

Macro uncertainty, tariffs, and Middle East conflict Fiscal Year 2026

Impacted FY26 performance.

Mitigation:Global teams demonstrated agility and resilience.

Complicated execution environment in Industrial segment Fiscal Year 2026

Impacted FY26 performance.

Mitigation:Teams focused on serving customers and delivering results.

Operational inefficiencies in power generation Q4 FY26, expected to continue into H1 FY27

40 basis points of gross margin pressure in Q4 FY26.

Mitigation:Progress made with measurable improvements in throughput and delivery; full recovery expected by mid-fiscal 2027.

Supply chain constraints in Aerospace and Defense Q4 FY26, expected to resolve in H1 FY27

Organic aerospace and defense sales declined 3% in Q4 FY26.

Mitigation:Teams managing closely, ramping production in new facility, proactive monitoring for new issues.

Select input cost inflation Q4 FY26

Offset gross margin favorability in Q4 FY26.

Mitigation:Largely related to the conflict in the Middle East.

Higher incentive compensation Q4 FY26

Contributed to 80 bps increase in operating expense as a rate of sales in Q4 FY26.

Mitigation:Partially offset by continued structural expense discipline.

Muted agriculture performance Q4 FY26, expected to remain muted in FY27

Offset strength in construction in Q4 FY26 Off-Road sales.

Mitigation:Seeing 'green shoots' and hoping for continued improvement throughout FY27.

What to watch in Q1 FY27

Power Generation operational recovery

Mid-fiscal 2027
Current 40 bps gross margin pressure in Q4 FY26
Target Full recovery

Why it matters

Recovery of power generation operations is key to improving Industrial segment margins and overall profitability.

Given the current trajectory, we remain confident that we will fully recover by the middle of fiscal 2027.

Q&A highlights

Despite strong Q4 margins, the FY27 guidance midpoint is lower. Are there underlying operational headwinds, and how should seasonality be considered?

Management confirmed some continued pressure in the Industrial business, specifically power generation and plant closures, which will impact the first half of FY27. However, they expect a meaningful step-up in the second half. Normal seasonality, with a back-half profit tilt (57% of operating profit), is also a factor. They highlighted gross margin expansion offset by operating expense headwinds, particularly $22 million in Facet amortization.

“The one nuance I'd say is, again, back to our comments, we talked about gross margin expansion with a little bit of operating expense headwind as a function of Facet. So something to keep in mind. The amortization, just really want to put a fine point on it, $22 million of incremental amortization as a function of that transaction that should be modeled through and that will obviously cascade through the year.”

asked by Stefan Diaz · answered by Brad Pogalz

2 min read 7 chapters

Detailed narrative

Record Fiscal 2026 Performance

Donaldson Company achieved a record fiscal year 2026, with sales reaching an all-time high of $3.9 billion, a 5% increase over 2025. Adjusted EPS grew 8% to a record $3.98, and operating margin expanded to a record 16%. The company also returned $250 million to shareholders through dividends and share repurchases, demonstrating strong financial execution and commitment to shareholder value.

Strategic Facet Acquisition and Integration

The acquisition of Facet Filtration on May 4, 2026, marked the largest in company history, strategically expanding Donaldson's position in durable end markets like aerospace and defense, and power generation. Facet strengthens the financial profile with its high-growth, high-margin, and high aftermarket sales percentage. Integration efforts are progressing well, focusing on technical collaboration for product development and achieving targeted synergies.

Strong Q4 Momentum and Margin Expansion

Donaldson's fourth quarter saw sales surpass $1 billion for the first time, growing 8% year-over-year. Adjusted EPS increased 12% to $1.15. Consolidated operating margin reached an all-time high of 17.5%, up 110 basis points from the prior year, driven by a 190 basis point increase in gross margin to 36.7%. This expansion reflects favorable volume, pricing, and mix, alongside improved operational efficiency.

Segment Dynamics and Outlook

Mobile Solutions experienced 8% sales growth in Q4, fueled by strong aftermarket performance and momentum in first-fit businesses, particularly in trucking. Industrial Solutions grew 8% in Q4, benefiting from Facet sales, though organic aerospace and defense sales declined 3% due to supply chain issues. Life Sciences sales increased 10%, driven by double-digit growth in Disk Drive and solid food and beverage sales, with strong demand expected to continue.

Fiscal 2027 Guidance and Capital Allocation

For fiscal 2027, Donaldson forecasts record sales of over $4.1 billion (7.5% increase) and adjusted EPS of approximately $4.30 (8% increase). Operating margin is expected to expand by 90 basis points to 16.9%, with free cash flow conversion projected between 95% and 105%. Capital allocation priorities remain consistent: reinvestment in the company, disciplined M&A, consistent dividends, and share repurchases to offset dilution.

Operational Headwinds and Mitigation

The company faced operational inefficiencies in power generation, resulting in a 40 basis point gross margin pressure in Q4, primarily from a plant shift in Mexico. Management expects full recovery by mid-fiscal 2027. Supply chain constraints continue to impact organic aerospace and defense sales, with resolution anticipated in the first half of FY27. Footprint optimization efforts are on track to deliver $10 million in annualized savings by the second half of FY27.

Life Sciences Reorganization

Beginning in Q1 FY27, Donaldson will reorganize its Life Sciences segment, combining its food and beverage and microelectronics businesses under a new name: Process Filtration. This focused structure aims to leverage common underlying filtration technologies and capabilities to drive scalable, above-market growth in high-purity applications across healthcare, pharmaceuticals, and data centers.

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