Q3 2024 Donaldson Co Inc Earnings Call
So noise after the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
To withdraw your question again prestige star one. Thank you I'd now like to turn the call over to circa Doyle Senior director of Investor Relations and ESG you may begin.
Good morning, Thank you for joining Donaldson's third quarter fiscal 2024 earnings conference call with me today are Tod Carpenter, Chairman, CEO, and President and Scott Robinson, Chief Financial Officer.
Tod Carpenter: This morning, Tod and Scott.
A summary of our third quarter performance and details on our outlook for fiscal 2024.
Scott Robinson: During today's call, we will discuss non-GAAP or adjusted results. While there were no non-GAAP adjustments in the third quarter of either fiscal 'twenty 'twenty four or 2023 for the full year of fiscal 2023, non-GAAP results exclude pre tax restructuring and other charges of $21 8 million.
Scott Robinson: A reconciliation of GAAP to non-GAAP metrics is provided within the schedules attached to this morning's press release. Additionally.
Scott Robinson: Additionally, please keep in mind that any forward looking statements made during this call are subject to risks and uncertainties, which are described in our press release and SEC filings with that I'll now turn the call over to Tod Carpenter. Please go ahead.
Tod Carpenter: Thanks, Erika good morning.
Tod Carpenter: Donaldson company's third quarter results were excellent sales increased 6% to a record $928 million.
Tod Carpenter: EPS increased 22% to a record 92.
Tod Carpenter: And operating margin was that more than a decade long high.
All three operating segments demonstrated growth and profitability.
Erika: And mobile solutions volume growth exceeded pricing gains driven by strength in our aftermarket business. We continued to benefit from market share gains as well as a return to a more normalized demand levels after destock.
Erika: In the prior year period.
Speaker Change: Profitability in mobile solutions continues to be exceptional.
Speaker Change: Pre tax profit margin hit an all time high of 18, 4%.
Speaker Change: This 340 basis point improvement over prior year was the result of favorable mix volume growth and pricing.
Speaker Change: In industrial solutions sales strength and high levels of profitability continued driven by project wins and market share gains in dust collection and power generation.
Speaker Change: Aerospace and defense also had a strong quarter end backlogs remain robust.
Speaker Change: We maintained focus on advancing our create and that replace and service model. This quarter, we acquired EZ flow filtration and industrial services business in Lagrange, Georgia.
Speaker Change: Easy flow brings to Donaldson additional service capabilities in both hydraulic and power generation filtration and a new geographic presence in the south Eastern United States.
Speaker Change: In life Sciences, we achieved sales growth above 20% and profitability through strength in our bio processing and disk drive businesses.
Speaker Change: We also continue to build for the future.
Speaker Change: In April we entered into an agreement to acquire a 49% stake in medica SBA a leader in hollow fiber membrane technology based in Metaller, Italy.
Speaker Change: This transaction is expected to be completed through a public tender offer and includes a call option to acquire the remaining 51% stake of the company in the years to come.
Speaker Change: Donaldson and Medica have a previously established relationship through an exclusive joint development agreement, allowing for the development and commercialization of hollow fiber modules in life sciences applications, including bio processing and food and beverage. These.
Speaker Change: These modules can be used with soliris.
Speaker Change: <unk> technologies, and Eissler products, demonstrating our vision and progress towards providing customers with a complete and differentiated product portfolio.
Speaker Change: From an operational standpoint backlogs across all three segments remains strong, indicating the overall health of our businesses for the foreseeable future.
Speaker Change: With supply chain conditions, mostly supportive donaldson's customer focus remains steadfast as we continually work to improve on time delivery rates.
Speaker Change: This quarter R&D capital expenditures and M&A activity continued as we invested to meet the future needs of our customers.
Speaker Change: R&D included product development initiatives in our legacy and newly acquired businesses and we expect to grow our investment levels double digits for the full year.
Speaker Change: Capital expenditures were primarily focused on increasing capacity and expanding new products and technology, including in our life Sciences segment.
Speaker Change: In keeping with our M&A strategic focus areas. We also deployed capital on.
Speaker Change: On the previously mentioned industrial services acquisition easy flow.
Speaker Change: Now I will provide some detail on third quarter sales.
Speaker Change: Total company sales were $928 million up 6% compared with prior year.
Speaker Change: Pricing contributed approximately 2% in mobile solutions total sales were $585 million, a 6% increase versus 2023.
Mobile aftermarket sales grew 11% year over year to $445 million.
Speaker Change: Independent channel sales grew mid single digits from market share gains and OE channel sales were up mid teens as demand returned to more normalized levels. Following destocking in the prior year period.
Speaker Change: Partially offsetting the strong aftermarket performance were declines in the first fit businesses sales in on road were $36 million down 6% due to lower levels of equipment production.
Particularly in APAC.
Speaker Change: Off road sales of $104 million declined 10% as agriculture markets remained soft and business in China continues to be weak.
Speaker Change: To that end I will touch on our mobile solutions business in China in aggregate, where sales decreased 32% over prior year.
Speaker Change: Both first fit and aftermarket sales declined impacted by weak overall demand and the timing of Chinese new year, which fell into the third quarter. This year versus the second quarter, a year ago, resulting in fewer ship dates this year.
Speaker Change: Despite the challenging nature of the China market today, we remain optimistic with respect to the long term market growth opportunities and our ability to gain share there overtime.
Speaker Change: Now I'll move on to the industrial solutions segment.
Industrial sales increased 3% to $269 million.
Speaker Change: Industrial filtration solutions or ISS sales grew 2% to $229 million due.
Speaker Change: Due to strong dust collection replacement parts sales and power generation project timing.
Speaker Change: Aerospace and defense sales rose, 6% to $41 million, driven by robust aerospace and market conditions.
In the life Sciences segment sales were $74 million up 24% year over year as a result of bio processing equipment.
Speaker Change: And disk drive strength.
Speaker Change: Acquisitions added approximately $10 million or 15 percentage points of sales growth due in large part to the timing of project shipments.
Scott Robinson: In summary, I am proud of what the Donaldson team accomplished this quarter driven by the strong results and our outlook for the fourth quarter, we are increasing our full year earnings guidance, which Scott will detail.
Scott: 2024 is forecasted to be a year of record sales record operating margin and record earnings.
Scott: Now I'll turn it over to Scott, who will provide more details on the financials Scott.
Scott: Scott.
Scott: Thanks, Todd good morning, everyone.
I want to thank our entire Donaldson team for their fantastic work this quarter.
Speaker Change: Without them, we would not.
Scott: <unk> been able to deliver such a strong performance and I am confident in our collective ability to drive continued success in the future.
Todd: Before discussing our outlook for fiscal 2024, I will give additional details on our results for the third quarter.
Todd: Sales increased 6% versus 2023.
Todd: Operating income increased 16%.
Speaker Change: And EPS of <unk> 92 was up 22% year over year.
Speaker Change: Gross margin of 35, six expanded 260 basis points above prior year from leverage on higher sales pricing and select input cost deflation.
Speaker Change: Operating expenses as a percent of sales were 21% versus 18, 8% a year ago.
Speaker Change: Expense deleveraging largely due to higher people related costs <unk>.
Speaker Change: Partially as a result of increased head count.
Speaker Change: Acquisition related expenses also contributed.
Speaker Change: Operating margin was 15, 5% 130 basis points about 2023, driven by gross margin expansion, partially offset by operating expense deleverage.
As I always say, we are committed to higher levels of profitability.
Speaker Change: Higher levels of sales and we clearly delivered that this quarter.
Speaker Change: Now I will discuss segment profitability.
Speaker Change: As Todd mentioned mobile solutions pre tax profit margin was a record of 18, 4%.
Speaker Change: 340 basis points above prior year, resulting from favorable mix volume growth and pricing benefits.
Speaker Change: Industrial solutions pre tax profit margin was 18, 7% approximately flat versus prior year.
Speaker Change: We are pleased with the high levels of profitability in the industrial business has been delivering and look forward to growing this business, which will increase blended margins for the company.
Speaker Change: Our life Sciences business generated a pre tax profit margin of approximately 1%.
Speaker Change: Including a headwind from acquisition of 16 percentage points.
We are encouraged by our improved performance in the corner. However, we are tracking below previous expectations and now expect full year profit margin to be down low single digits.
Speaker Change: The nature of our acquisition related revenue brings with it some timing uncertainty.
Speaker Change: This layered on top of ongoing investments to support scaling as delayed our full year projected profitability inflection point that said our confidence in the longer term sales growth and profitability potential of our life science business has not wavered.
Speaker Change: Given the year to date trend, we have been seen in all three segments with two of three tracking ahead of expectations. We are evaluated our longer term financial targets and we'll provide an update with our fiscal 2025 guidance during the fourth quarter call.
Speaker Change: Turning to a few balance sheet and cash flow statement highlights.
Speaker Change: Third quarter capital expenditures were approximately $21 million.
Speaker Change: Cash conversion in the quarter was 106%.
Speaker Change: On par with prior year, driven by our continued focus on working capital efficiency.
Speaker Change: In terms of other capital deployment, we returned approximately $57 million to shareholders.
Speaker Change: So about $30 million in the form of dividends and $27 million and share repurchases. We also invested $2 million on the easy flow acquisition.
Speaker Change: We ended the quarter with a net debt to EBITDA ratio.
<unk>.
Speaker Change: 0.5 times.
Now moving to our fiscal 'twenty four outlook first on sales we are narrowing our full year total sales guidance to an increase of between four and 6%.
Speaker Change: Consistent with our prior forecast this includes our pricing benefits of approximately 2%.
Speaker Change: And a minimal impact from currency translation.
Speaker Change: For mobile solutions, we are forecasting an increase of between two and 4% unchanged from our previous expectation.
Speaker Change: Off road sales remained projected to be down low double digits and global agriculture markets in China remained weak.
Speaker Change: On road markets have continued to soften driving a reduction in our forecast a negative low single digits versus flat previously.
Speaker Change: Our outlook for aftermarket continues to be mid single digit growth as a result of market share gains and the lapping of destocking in the prior year period.
Speaker Change: Industrial solutions sales are expected to increase between six and 8% with a midpoint of 7% up from our previous guidance range, which carried a midpoint of 5%.
Speaker Change: Iff's sales driven by strength in dust collection and power generation are forecast to grow mid single digits in line with our prior expectations our outlook for aerospace and defense has improved and we now expect sales to grow low double digits up from mid single digits.
Speaker Change: Previously as robust and market conditions continue.
Speaker Change: For life Sciences, we are reducing our sales guidance for the full year to a mid teens increase.
Speaker Change: Paired with the approximate 20% growth previously forecast.
Speaker Change: We are pleased with and encouraged by the interest in our bio processing technologies and product portfolio.
Speaker Change: However, capital remains constricted in many biopharmaceutical markets, particularly for our research and early stage assets.
Speaker Change: As we navigate the current challenging macro conditions, we remain focused on building out our technology and capabilities and laying the groundwork for future success.
In the near term, we expect ongoing momentum in businesses, such as disk drive food and beverage and vehicle electrification.
Speaker Change: With respect to consolidated operating margin, we are reaffirming our previous guidance of 15.0 to 15, 4%, which is an all time record.
Speaker Change: Compared with an adjusted operating margin of 14, 6% a year ago.
Speaker Change: At the midpoint. This approximately 60 basis point year over year improvement is driven by gross margin expansion, partially offset by expense deleveraging as we maintain our commitment to investing for future profitable growth.
Speaker Change: We are adjusting our outlook for interest other income and tax.
Speaker Change: Interest is expected to be approximately $22 million down slightly from $23 million previously.
Speaker Change: Other income is projected between 15 and $17 million up from prior guidance of $10 million to $12 million due to better than expected joint venture income and FX benefits.
Speaker Change: Our tax rate is forecast between 23 and 24%.
Speaker Change: Down 100 basis points from prior guidance.
Speaker Change: For EPS, we are increasing our outlook to between $3 30, <unk> and $3 39.
Speaker Change: Our 32 cents or a 11% increase at the midpoint from adjusted EPS of $3 <unk> in fiscal 2023.
Speaker Change: With three quarters of the year behind US we are pleased with our performance and better position than ever to deliver to all our stakeholders in fiscal 2024 and beyond.
Speaker Change: Now onto our balance sheet and cash flow outlook cash conversion is forecast above historical averages at 95% to 105% for the full year.
Speaker Change: Capital expenditures weighted towards growth investments, including capacity and new products and technologies are projected between 90 million to $105 million down slightly from the previous $95 million to $110 million range.
Donaldson: Capital deployment is vital for Donaldson and our strategy is unchanged first we are focused on reinvesting back into the company either organically or inorganically through M&A as we continue to demonstrate we also look to return value to shareholders through our dividends and share repurchases.
Last week, we announced an 8% increase in our quarterly cash dividend and we intend to repurchase approximately 2% of our shares outstanding this fiscal year.
Donaldson: Now I'll turn the call back to Todd.
Thanks Scott.
Todd: I am more confident than ever in the Donaldson team our long term strategy.
Todd: Technology pipeline and ongoing investments, we are committed to working towards our investors day targets, both our fiscal 2026 financial objectives as well as our 2030 ESG ambitions.
Speaker Change: During the quarter, we published our fiscal 2023 sustainability report, which can be accessed on our website or via the QR code within our earnings slide presentation.
Speaker Change: The report highlights our sustainability strategy, which is underpinned by.
Speaker Change: Creating sustainable value through our products.
Speaker Change: Fostering a safe and diverse environment for our people.
Speaker Change: <unk> operating sustainably with a focus on our planet.
Speaker Change: I'll touch on a few recent highlights in these areas.
Speaker Change: Products.
Speaker Change: We are proud of our innovative technology and development capabilities in life Sciences.
Speaker Change: In May we announced our partnership with polypeptide group to improve sustainability and the manufacturing of peptides, which are active pharmaceutical ingredients used in various medical therapies.
Speaker Change: Our collaboration on the development of our production scale solvent recovery system marked a milestone in the pharmaceutical industry pursuit of environmentally friendly manufacturing processes.
Speaker Change: Donaldson is also creating sustainable value through our life changing technologies.
Speaker Change: We are currently supporting over 140 therapies, including 50 proofs of concept and 90 drug development programs, where our technologies are utilized by customers to trial develop and scale processes crucial for advancing cell and gene therapies.
Speaker Change: And RNA and traditional vaccines.
Speaker Change: Many of these programs are currently in the preclinical stage. However, we do have some that are in clinical trials and a few that are likely to enter commercial production this calendar year.
Speaker Change: Importantly, these include customers that originated both organically and via our universe cells, Virologic and Eissler acquisitions, demonstrating the power of our M&A strategy.
Speaker Change: Now on our people and our planet.
Speaker Change: We have made notable progress toward our 2030 people and planet ambitions, including promoting safety and diversity and operating sustainably.
Speaker Change: Many of our achievements are documented in our sustainability report and much of our work has been publicly recognized.
Speaker Change: For 2020 for Donaldson is included in the U S News and world's report best companies to work for.
Speaker Change: In Newsweek's list of greatest workplaces for diversity.
Speaker Change: And America's most responsible companies.
Speaker Change: To close.
I am proud of this team and the work, we're doing and want to thank all of our valued Donaldson employees.
Speaker Change: With that I will now turn the call back to the operator to open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue if you'd like to withdraw your question simply press Star one again.
Speaker Change: Our first question comes from the line of Angel Castillo from Morgan Stanley. Your line is open.
Angel Castillo: Hi, good morning, and thanks for taking the question just wanted to touch base, a little bit more on the view for the full year outlook on operating margins.
Angel Castillo: Strong performance here and you've talked about.
Obviously, a continuation of that so just curious if you could just unpack a little bit more.
Angel Castillo: Kind of the views on the operating margin why not raise that for the full year and just kind of the input here for the fourth quarter.
Angel Castillo: Yeah. Good morning. This is Scott so I mean, we're I mean, we're pleased with the excellent quarter that we delivered operating margin in the quarter was 15, 5%, that's 130 basis points improvement with the midpoint of the guide at 15 point to if you did the math you'd see we expect another <unk>.
Increase in the fourth quarter, and our operating margins sequentially and over the prior year by quite a significant number so we feel pretty good about our at the midpoint 60 basis point operating margin improvement guided for this year.
Strong performance and we decided.
Angel Castillo: To expect the previously contemplated improvements in the fourth quarter to come through so we feel pretty good about where reset and that's where we left the guidance.
Angel Castillo: That's helpful. Thank you and then could you unpack a little bit more on life Sciences I think.
Speaker Change: As I recall after kind of fiscal <unk>. There was a number of factors that give you.
Speaker Change: Confidence, there and plus 20% so it sounds like some of those maybe timing or some of those investments may have kind of changed. So just can you help us understand what's kind of changed and has.
Speaker Change: Essentially gotten pushed out to fiscal 'twenty five or are there other factors that play in terms of expectations here.
Speaker Change: Sure as we are.
Speaker Change: And we went into the quarter, we had the backlog to be able to support our previous guide.
That was clear what was interesting as we were able to get some of those projects.
Speaker Change: We have been previously talking about in quarters. The lumpiness of that we were able to deliver some of that.
Speaker Change: Some of that actually is pushed.
Speaker Change: A little bit more than our expectation.
Speaker Change: And then also as you look at the bio processing side.
A little bit more.
Speaker Change: Carefulness on the incoming orders.
Speaker Change: As what we experienced within the quarter so.
Overall, a little bit more movement than we would have.
Speaker Change: Expected.
Speaker Change: Is really the reason for the change.
Speaker Change: Very helpful. Thank you.
Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Speaker Change: Hi, This is Dan Rizzo on for Laurence. Thank you for taking my question.
I was just wondering given the growth outlook, how we should think about capex.
Speaker Change: Over the next two to three years.
Speaker Change: At this kind of rate or we come to the to.
Speaker Change: Two the kind of large investment cycle or is it going to accelerate.
Speaker Change: More term.
Speaker Change: Yes.
Scott: Scott Good morning.
Speaker Change: Our Investor Day meeting, we said, we expect it all contemplated capex to be able to be completed at a maximum rate of three 5% for sales.
Speaker Change: We still expect that to be the case.
Speaker Change: I think our industrial solutions and mobile solutions business are are very well capitalized and really performing well and have a great.
Speaker Change: Level of invested capital for the future that they can see we do expect to continue to invest in life Sciences.
Speaker Change: With some of the great opportunities that we have in front of us.
Speaker Change: But we expect to be able to do that within that original guide.
Speaker Change: Three 5% of revenues at most.
Speaker Change: That's very helpful and then in terms of pricing.
Speaker Change: Evan.
Where we are.
Speaker Change #100: And when are we moving more back towards kind of more historic environment will there'll be some pricing but.
Speaker Change #101: Of course in a quick close kind of in check it's it'll be I don't know I guess more modest going forward.
Speaker Change #102: With caution I guess.
Speaker Change #102: And overall.
Speaker Change #103: Yes, so when you take a look at our pricing behaviors now we have capital to return back to a more normal pricing behavior and a normal cadence across the company and across the entirety of our business portfolio for sure.
Speaker Change #104: I do want to point out that.
Speaker Change #105: A lot of people talk about what's happening in the raw materials based markets.
Speaker Change #104: But.
Speaker Change #106: Overall, while some of the inflation has abated on a selective based economy.
Speaker Change #107: The selective base material.
Speaker Change #107: Commodity.
Speaker Change #108: It's not across the full ramifications of cost to our company.
Speaker Change #108: When you look at some of the commodities are still feeling some headwinds you've got freight with headwinds certainly we have labor headwinds. So it's still a mixed environment really supporting a more.
Speaker Change #108: Really a more careful approach to pricing but.
Speaker Change #108: Pricing actions within our company are certainly.
Speaker Change #109: Not experiencing the headwinds that may be advertising markets.
Speaker Change #110: Alright, Thank you very much.
Speaker Change #110: Your next question comes from the line of Nathan Jones from Stifel. Your line is open.
Speaker Change #110: Okay. Thank you and good morning. This is Adam Farley on coordination.
Speaker Change #111: I wanted to start with operating expenses.
Speaker Change #112: What should we expect from operating expenses in the short to medium term, although life science business and structurally higher.
Speaker Change #112: SG&A.
Speaker Change #113: Or should also be able to leverage these expenses back.
Speaker Change #114: Alright. Thanks.
Speaker Change #115: Yes, so when you take a look at what we're doing right.
And you just ground that to our Investor day targets.
Speaker Change #116: Mobile is above Investor day targets industrial is above Investor day targets, and we're building our business out into the life Sciences side. So as we continue to invest to build on our life Sciences surely we have those kind of.
Speaker Change #117: Those kind of increases that youre seeing we would expect to continue our investment levels in life Sciences, and where we see opportunity we'll press those even harder.
Speaker Change #117: And so that will in the short term are kicked out a bit elevated but over time as that business continues to bill certainly we would see that normalize back into company averages.
Speaker Change #118: Zach potentially given the hockey stick nature of some of those investments that we have.
Good actually joined the company a bit lower.
Speaker Change #119: And then a high teens numbers.
That is typically referenced.
Speaker Change #120: Okay. That's helpful and then I wanted to touch on disk drives.
Speaker Change #120: <unk> 23 was a softer market you saw.
Speaker Change #121: Soft end markets and inventory corrections.
Speaker Change #122: The business back to a more normalized level of revenue today.
Or do you expect some more challenges there.
Speaker Change #122: Yes, its certainly back to a more normalized level as far as.
Speaker Change #122: A little bit of increasing so it is stepping forward, it's actually growing.
Hey.
Speaker Change #123: Certainly the bottom is behind US we are hiring people again.
Speaker Change #124: In our disk drive manufacturing plants, the customers' expectations are ramping up certainly.
Speaker Change #125: So that that reset is behind us and now we fully expect to walk forward a little bit.
Speaker Change #126: That business.
Speaker Change #127: Thank you for taking my questions.
Brian drop: Our next question comes from the line of Brian drop from William Blair. Your line is open.
Hey, Good morning. This is Tyler on for Brian I. Appreciate you guys, taking my questions. I was just wondering if you could elaborate more on what.
Speaker Change #129: About the reduction in the on road guidance, what markets are particularly softening.
Speaker Change #130: Well within on road, it's long haul trucks right. So.
Speaker Change #131: And particularly it would be just just slight softening within the U S base.
Speaker Change #132: Vehicle manufacturing.
Speaker Change #132: Markets is really where that's focused.
Speaker Change #132: But just slightly.
Speaker Change #132: Slightly.
Speaker Change #132: There's still a shot at it it's still at pretty high levels.
Speaker Change #132: Okay.
Speaker Change #133: The other place we yes, the other places in the on road, I guess, where we have a little bit of headwinds would be China.
Speaker Change #133: And because of that.
Speaker Change #133: The program and kind of the fits and starts there.
Speaker Change #134: Makes sense.
Speaker Change #135: Just a follow up can you just kind of summarize the near term revenue ops and borrow precedent processing like what just remind us of what exactly is going to market first and kind of the timeline of all those products. Thank you.
Speaker Change #136: Yes, sure so theirs.
Speaker Change #136: Quite a broad based portfolio within within that.
Speaker Change #137: Business sector, if you will within that vertical.
Speaker Change #138: You have our disk drive based businesses, but you also had food and beverage and we continue to expect growth out of our food and beverage base business, we're pressing that really quite nicely.
Speaker Change #139: And we would expect that to growth to grow we have vehicle electrification in there though.
Speaker Change #140: Two businesses and some of the technology the branches across those businesses also go within our some of our medical based applications.
Speaker Change #140: Where we use some of the same polymer based manufacturing techniques.
Speaker Change #140: And therefore, that's why it's within that particular vertical.
Speaker Change #140: It gives us.
Speaker Change #141: <unk> portfolio of opportunity to really be able to rise, but vehicle electrification is positive.
Speaker Change #142: The headwinds are more within the bioprocess and sector. So our universal cells technologies are eissler bio which is pre revenue.
Speaker Change #142: And our peer logic, which is pre revenue.
Speaker Change #142: Those kind of.
Speaker Change #142: Those kind of investments continue to as we ramp those up continue to give us a little bit of a headwind.
Speaker Change #143: Okay, just just to confirm the universe.
Speaker Change #144: Only one driving revenue right now within bio processing.
Speaker Change #145: All of the acquisitions Universal's driving.
Speaker Change #145: Driving revenue yes.
Speaker Change #146: ISIL Air and <unk> have some lab support based revenue, but it's it's very very small as we continue to populate laboratories in support of the therapy. These programs that we referenced within script.
Speaker Change #146: Okay.
Speaker Change #147: Appreciate it I'll pass it on alright, Thank you okay.
Speaker Change #147: And again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Rob Mason from Baird. Your line is open.
Rob Mason: Yes, good morning.
Rob Mason: Good to hear about the the commentary around continued share gains in the mobile aftermarket part of the business I was curious though.
Rob Mason: And as those are layering in is that distorting your season abnormal seasonality in that business and the reason I ask is.
You guided or kept the guidance for that part of the business at mid single digit for the full year, but.
Speaker Change #150: Just given what's typical fourth quarter seasonality looks like it would normally be up and thats not.
Speaker Change #149: Not really evident in the mid single digits.
Speaker Change #151: Is that just conservatism on the outlook or is there some dynamics just the share gains are layering in.
Speaker Change #152: Yes, great question. Thanks, Rob So let me break some things down for you. So when you look at our mobile aftermarket.
Rob Mason: Certainly we had a nice quarter up 11%, let me break that down into OE. So OE was up mid teens right and then the independent channel was up high single digits.
Rob Mason: And so where you really see the seasonality when you go back to comp yield OE side is in the OE side up to teens, Okay, but you had such easy comps from last year. We've now returned that business back to where it was <unk>.
Speaker Change #153: <unk> Destocking and so you see the pull through coming through now on that business as it's return which is really.
Speaker Change #154: Sure fire sign of the seasonality, we would typically see and as you know now profile of the company for so long.
Speaker Change #155: That really is why our model is more of a 48% in the first half of the year and 52 in the second half. So we are seeing that seasonality to support at 52% company revenue in the second half. It just I can understand why it may not be quite so obvious, but specifically in that OE.
Speaker Change #156: OE aftermarket channel.
Speaker Change #157: We are definitely seeing it and then on the independent channel, it's clearly share gains.
Speaker Change #157: Yes, yes.
Speaker Change #157: Just maybe just.
Speaker Change #158: Just on mobile again, the profitability there continues to come through really strongly.
Single digits, and so where you really see the seasonality when you go back to comp the old OE side is in the OE side up the teams, okay, but you've had such easy comps from last year. We've now returned that business back to where it was.
I guess at a pretax level.
Speaker Change #159: To what degree is the JV income influencing that or is it influencing that.
Speaker Change #160: Port such high Incrementals, and how sustainable would you think that.
The JV income if thats a contributor would be.
<unk> Destocking and so you see the pull through coming through now on that business as it's return which is really.
Speaker Change #161: It's not really appreciable and its contribution to be honest.
Speaker Change #161: But where it certainly as we would expect it to be sustainable.
A surefire sign of the seasonality, we would typically see and as you know our profile of the company for so long that really is why our model is more of a 48% in the first half of the year and 52 in the second half. So we are seeing that seasonality to support that 52% company revenue in the.
Speaker Change #161: Our JV is now as a result of the volume increases that we've experienced are are functioning much better than they were.
Speaker Change #161: Within the model of a couple of years ago for sure.
Speaker Change #162: But it's not really the story.
Speaker Change #162: Okay.
Speaker Change #163: And then just a question on the.
Second half, it's just I can understand why it may not be quite so obvious, but specifically in that OE.
Speaker Change #164: Iff's business how is the.
Speaker Change #165: The upcoming quotes on the equipment side, you commented on the aftermarket piece being healthy.
OE aftermarket channel.
We are definitely seeing it and then on the independent channel, it's clearly share gains.
Speaker Change #165: Curious what youre seeing on quoting on the equipment side and how that could play into the balance of the year relative to backlog as well.
Speaker Change: Yep Yep.
Speaker Change: Just maybe just.
About the same as we were last quarter. So we would say it's slightly.
Speaker Change: Just on mobile given the profitability there it continues to come through really strongly.
<unk> so it just ever so slightly like by a month or so so if you go back to normal quote to order kind of thing it would be measured in say six to eight weakening four to eight weeks and now it might be six to 10 weeks kind of a thing. So it all feels just a little bit more careful in and.
Speaker Change: I guess at a pretax level.
Speaker Change: To what degree is the JV income influencing that or is it influencing that.
Speaker Change: Port such high Incrementals, and how sustainable would you think that.
Speaker Change: The JV income if thats a contributor would be.
Speaker Change: It's not really appreciable and its contribution to be honest.
Speaker Change #166: But youre still seeing large projects are multimillion dollar projects within dust collection, so you've got capacity expansion et.
But where it certainly as we would expect it to be sustainable.
Speaker Change #167: Et cetera, and for US you still have strong.
Speaker Change: Our JV is now as a result of the volume increases that we've experienced are are functioning much better than they were.
Speaker Change #167: Overall plant usage.
Our aftermarket business continues to.
Speaker Change: Within the model of a couple of years ago for sure.
Speaker Change #168: <unk> continues to gain share and grow.
Speaker Change #169: But overall the business is comfortable.
Speaker Change: But it's not really the story.
Speaker Change: Okay.
Speaker Change #170: And really much as it was at the end of second quarter.
Speaker Change: And then just a question on the.
Speaker Change: Iff's business how is the.
Speaker Change #170: Okay.
Speaker Change #171: Just one question if I could.
Speaker Change: The upcoming quotes on the equipment side, you commented on the aftermarket piece being healthy.
Speaker Change #172: The America.
Speaker Change #172: Yeah.
Speaker Change #173: Take that youre acquiring its pretty interesting getting access to that hollow fiber membrane technology.
Speaker Change: Just curious what youre seeing on quoting on the equipment side and how that could play into the balance of the year relative to backlog as well.
Speaker Change #174: You commented on some joint development work that is already been ongoing there whats the current status of that.
About the same as we were last quarter. So we would say it's slightly.
Speaker Change #175: What would be the outlook for revenue contribution coming from that.
Speaker Change: <unk> so it just ever so slightly like by a month or so so if you. If you go back to normal quote to order kind of thing it would be it would be measured in say.
Speaker Change #176: Particular relationship.
Speaker Change #177: So what we're doing.
Speaker Change #178: Sure. So what we're developing with medica and have been for a number of orders already.
Speaker Change: Six to eight weakening four to eight weeks and now it might be six to 10 weeks kind of a thing. So it all feels just a little bit more careful in and but youre still seeing large projects are multimillion dollar projects within dust collection, so you've got capacity expansion et.
Speaker Change #179: As tangential flow filtration for bio processing to support our overall bio processing strategy.
Speaker Change #180: It is going to take us some time to develop and get those products released.
Speaker Change #181: I would certainly not expect any revenue. This year, we do have to go through an approval process of being able to utilize those particular products but.
Speaker Change: Et cetera, and for US you still have strong.
Speaker Change: Overall plant usage.
Speaker Change: Our aftermarket business continues to <unk>.
Speaker Change #181: But certainly.
Speaker Change #181: Sometime next fiscal year late next fiscal year it would likely.
Speaker Change: The gain share and grow.
Speaker Change: But overall the business is comfortable.
Speaker Change #181: It would likely see revenue.
Speaker Change: And really much as it was at the end of second quarter.
Speaker Change #181: The overall <unk> filters that we're doing go into land based applications Bioreactor productions.
Speaker Change: Okay.
Speaker Change: Just one question if I could.
Speaker Change: The America.
Speaker Change #181: Cell culture type of expansion processes, all within bio processing.
Speaker Change: Steak that youre acquiring its pretty interesting getting access to the hollow fiber membrane technology.
Speaker Change #182: And really help to improve yields.
Speaker Change: You commented on some joint development work.
Speaker Change #183: Within those processes. So it's a fundamental filtration technology that Donaldson company does not have.
Speaker Change: Already been ongoing there whats the current status of that.
Speaker Change: What would be the outlook for revenue contribution coming from that.
And it's a portfolio today. So we're really excited about what it brings to the corporation.
Speaker Change: Particular relationship.
Speaker Change: So what we're doing.
Speaker Change: Sure.
Speaker Change: Sure. So what we're developing with medica and have been for a number of orders already.
Speaker Change #183: Very good.
Speaker Change #184: I'll turn it back thank you.
Speaker Change: As tangential flow filtration for bio processing to support our overall bio processing strategy.
Speaker Change #185: And that concludes our question and answer session I will now turn the call back over to President and CEO Tod Carpenter for closing remarks.
Speaker Change: It is going to take us some time to develop and get those products released.
Speaker Change: I would certainly not expect any revenue. This year, we do have to go through an approval process of being able to utilize those particular products but.
Speaker Change #186: That concludes the call today, thanks to everyone, who participated and I look forward to reporting our fourth quarter fiscal 2024 results in August have a great day Goodbye.
Speaker Change: But certainly.
Speaker Change: Sometime next fiscal year late next fiscal year it would likely.
Speaker Change #186: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Wed likely see revenue.
Speaker Change #186: Yeah.
Speaker Change: The overall <unk> filters that we're doing go into land based applications Bioreactor productions.
Speaker Change: Cell culture type of expansion processes, all within bio processing.
Speaker Change: And really help to improve yields.
Speaker Change: Within those processes. So it's a fundamental filtration technology that Donaldson company does not have.
Speaker Change: And it's a portfolio today. So we're really excited about what it brings to the corporation.
Speaker Change: Yes.
Speaker Change: Very good.
Speaker Change: I'll turn it back thank you.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to President and CEO Tod Carpenter for closing remarks.
Tod E. Carpenter: That concludes the call today, thanks to everyone, who participated and I look forward to reporting our fourth quarter fiscal 2024 results in August have a great day Goodbye.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Tod E. Carpenter: Okay.
Tod E. Carpenter: Okay.
Tod E. Carpenter: Yeah.