Donaldson Company Inc (DCI) Q2 2025 Earnings Report

- Revenue: $870.0 million, down 1% YoY; currency impact -170 bps; price impact +1% so ex-currency revenue +1% YoY
- Gross margin: 35.16% (305.9/870.0); gross margin flat to prior year
- Operating income: $125.5 million; operating margin 14.43% (125.5/870.0)
- EBITDA: $155.9 million; EBITDA margin 17.93%
- Net income: $95.9 million; net margin 11.02%
- Diluted EPS: $0.79; basic EPS $0.80; GAAP EPS aligns with adjusted commentary (adjusted EPS referenced as $0.83 in the call)
- Cash flow: net cash from operating activities $90.4 million; capex $18.9 million; free cash flow $71.5 million
- Balance sheet: cash and equivalents $189.1 million; total debt $577.4 million; net debt $388.3 million; cash balance supports ongoing buybacks and capex
- Liquidity/ratios: current ratio 1.86, debt-to-capitalization 27.2%, debt-to-equity 0.374, interest coverage 21.3x
- Shareholder returns: dividends paid; payout ratio ~33.6%; 2–3% annual share repurchase target
- Sector/benchmark view: EV/EBITDA and margin profile consistent with a diversified filtration leader; P/E ~22x, P/B ~5.5x, P/S ~9.8x (as of QQ2 2025 data)

- Strategy and portfolio diversification: Tod Carpenter highlighted a diversified, technology-led filtration platform and ongoing investments in capacity and new products, including EasyFlow acquisition and a push into connected service revenue. Quote: “we continue to build our industrial business through our create, connect, replace, service business model.”
- Strategic product wins and partnerships: A notable win in China and a hydrogen fuel-cell initiative with Daimler Truck North America to feature Donaldson’s advanced air filtration in Freightliner SuperTruck 2. Quote: “In January, we announced a partnership with Daimler Truck North America on their hydrogen fuel cell project. Donaldson's advanced air filter technology will be featured in the next generation Freightliner SuperTruck 2.”
- Electrification timing and market commentary: Management cautioned that electrification would not materialize as quickly as some had hoped, signaling a focus on near-term momentum in traditional markets and acceptance of longer-term growth in electrified applications. Quote: “the electrification phenomenon is clearly not gonna happen as quickly as many had hoped.”
- Margin discipline and guidance stance: Brad Pogalz emphasized expense discipline and operating leverage driving margin expansion, and management’s willingness to adjust only where warranted by macro conditions (tariffs, FX). Quote: “we are increasing the midpoint of our operating margin guidance range by 20 basis points” and “guidance does not include tariff-related adjustments, but we are prepared to act.”
- End-market backdrop and backlog: The team noted weakness in agriculture, dust collection, and certain life sciences project backlogs but remained confident in pricing power, aftermarket growth, and backlog-driven capacity utilization. Quote: “In all three segments, sales were impacted by weak end market conditions, including in agriculture, transportation, industrial gases, dust collection, and bioprocessing.”

Overall, Donaldson presents a constructive investment case built on a resilient margin framework, high cash generation, and a diversified, technology-enabled filtration platform with meaningful upside from aftermarket expansion and strategic acquisitions. The QQ2 2025 results underscore execution discipline, with gross margin stability and a modest but meaningful operating margin expansion. The guidance for FY2025—flat to +4% revenue, 15.6%–16.0% operating margin, and $3.60–$3.68 in adjusted EPS—reflects a cautious view on short-term macro softness but a path to higher profitability driven by mix, pricing, and cost controls. The Daimler hydrogen-fuel-cell collaboration and rising connected-services adoption provide qualitative catalysts for growth and premium-margin opportunities beyond traditional filtration.