Q1 2025 Donaldson Co Inc Earnings Call

Thank you for standing by and welcome to the Donaldson Company First Quarter Fiscal Year 2025 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Speaker Change: If you would like to withdraw your question, again, press the star 1. Thank you. I'd now like to turn the call over to Sarika Dhadwal, Senior Director of Investor Relations. You may begin.

Sarika Dhadwal: Good morning. Thank you for joining Donaldson's first quarter fiscal 2025 earnings conference call. With me today are Tod Carpenter, Chairman, President and CEO, and Brad Pogos, Chief Financial Officer.

Sarika Dhadwal: Also on the call is Scott Robinson, former CFO and current strategic advisor.

Sarika Dhadwal: This morning, Tod and Brad will provide a summary of our first quarter performance and reaffirm our outlook for fiscal 2025.

During today's call, we will discuss non-GAAP or adjusted results.

Sarika Dhadwal: For first quarter 2025, non-GAAP results exclude pre-tax restructuring and other charges of $3.3 million, primarily related to cost reduction initiatives in the life sciences segment.

Sarika Dhadwal: A reconciliation of gap to non-gap metrics is provided within the schedules attached to this morning's press release.

Speaker Change: 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 will now turn the call over to Todd.

Speaker Change: Thanks, Sarika. Good morning. Before we get started, on behalf of the Board of Directors and Donaldson Company, I want to thank Scott Robinson for his contributions over the past nine years.

Todd: We are better as an organization because of him. He led us through several significant global initiatives which undoubtedly resulted in improved financial performance and shareholder value creation.

Todd: He also built a world-class finance team, the best Donaldson company has ever had. So Scott, enjoy your retirement, you've earned it, and we look forward to hearing stories about your continued adventures hunting, fishing, traveling, and the like.

Todd: With that, I also want to formally acknowledge Brad Pogals, our current CFO.

Todd: Many of you already know Brad from his former positions, including as head of investment relations for Donaldson. He's been with the organization for nearly a decade, and I'm confident his experience and deep understanding of our business will enable his success in his new role.

Now, on to the first quarter results.

Todd: Our record first quarter earnings mark a strong start to fiscal 2025. We increased sales in all three segments, gained share in key business units through our technology-led solutions, and maintained strong gross margins.

Todd: Also, as part of our ongoing work to optimize and elevate the margin profile of the company, we took actions to focus our expense structure within the life sciences segment in response to continuing market pressures.

Todd: This work is part of the Footprint and Cost Optimization Program we began last quarter. In summary, this quarter, we executed and laid the foundation for higher profitability.

Now some highlights from each of our segments.

Todd: In Mobile Solutions, we delivered strong sales growth and improved profitability with the backdrop of weak end market conditions, including in agriculture and transportation. We achieved this through higher volumes and mixed benefits from our aftermarket business.

Todd: To support our growth, we opened a new distribution center in Olive Branch, Mississippi, strengthening our ability to deliver aftermarket products with speed and reliability to our customers.

Todd: In industrial solutions, our aerospace and defense business performance continued to be excellent, driven by a notable increase in both new and replacement parts sales as end market conditions remained strong.

Todd: Connected solution sales, while still a small part of the industrial segment, rose significantly year-over-year as we increased the number of connected machines and connected customer facilities.

Todd: In life sciences, sales increased double digits from share gains and improved market conditions in disk drive, as well as strength in our food and beverage business.

Todd: Early in the quarter, we expanded our presence in food and beverage markets with the launch of filtration services in France, Germany, and Austria. This expansion brings Donaldson specialists and product and process integrity directly to customer locations.

Todd: It also sets the stage for further expansion and share gains across Europe.

Todd: With respect to our bioprocessing acquisitions, we are making progress in our work towards penetrating the market through product launches.

Speaker Change: Universe Cells Technologies launched the Scale-X NEXO bioreactor, a miniature fixed-bed system designed for efficient cell culture process development across multiple modalities.

Speaker Change: Our solution reduces media and reagent consumption and makes biomanufacturing more cost effective.

Speaker Change: Isolair Bio announced the availability of its research-grade Isotag AAV reagent.

Speaker Change: This latest addition to the ISOTAG reagent platform represents a significant leap forward in AAV purification for gene therapies, accelerating the purification process, enhancing yield, purity and quality.

Speaker Change: Our manufacturing grade reagent is on track to be available in calendar 2025.

Speaker Change: These technologies are just a few of the exciting solutions our bioprocessing businesses have been developing. We are optimistic about our growth prospects in these markets and remain focused on scaling our acquired businesses.

Now I'll cover some consolidated company highlights.

Speaker Change: Sales of $900 million were up 6% year-over-year, driven primarily by volume growth.

Pricing added 1% and currency was a 1% tailwind.

Speaker Change: Adjusted EPS in the quarter was 83 cents up 11% versus prior year. Our operating margin improved versus 2024 through leverage on higher sales.

Speaker Change: We delivered our products and services to our customers, worked on our backlogs, and improved on-time delivery rates. While supply chain constraints continue in some areas of our business, overall, we are benefiting from more normalized conditions.

Speaker Change: During the quarter, we continued to thoughtfully invest for future profitable growth through CAPEX and R&D investments.

Speaker Change: Capital expenditures included investments in talent recruitment and retention, new products and technologies including in our life sciences segment, and capacity.

Speaker Change: Our R&D investments increased year-over-year, driven in large part by life sciences projects.

Speaker Change: Looking ahead, Donaldson's strong free cash flow generation and robust balance sheet puts us in a great position to continue to strategically invest and remain the leader in technology-led filtration for years to come.

Now we'll provide some detail on first quarter sales.

Speaker Change: In mobile solutions, total sales were $572 million, a 6% increase versus 2024.

Similar to recent quarters, interest segment performance was mixed.

Aftermarket sales of $451 million were up 11% year-over-year.

Speaker Change: Within aftermarket, OE channel sales were up mid-teens as we continued to cycle against destocking in the prior year period. Beginning in the second quarter, we will compare against more normalized levels of demand a year ago.

Speaker Change: Independent channel sales grew mid-single digits from market share gains and high vehicle utilization rates.

Speaker Change: Off-road sales of $89 million were down 6% due to sustained weak end market conditions, largely in the global agriculture market.

Speaker Change: Sales in on-road were $32 million, down 15%, driven by lower equipment production, predominantly in the U.S. and China.

Speaker Change: Now we'll touch on China as a whole within mobile solutions.

Speaker Change: Sales increased 4% versus 2024 driven by double-digit growth in aftermarket.

Speaker Change: On the First Fit side, weak on-road sails were partially offset by off-road performance, which turned positive after five quarters of declines.

Speaker Change: Over the long term, we are committed to growing our business in China, which, importantly, has been and will continue to be largely supported by our in-region manufacturing.

Turning to the industrial solutions and life sciences segments.

Industrial sales increased 5% to $258 million dollars.

Speaker Change: As noted earlier, aerospace and defense sales had very strong growth and rose 27 percent. Industrial Filtration Solutions, or IFS, sales grew 1 percent to $212 million, driven by power generation project timing.

Speaker Change: Life Sciences sales were 70 million dollars, up 17% year-over-year. As previously mentioned, disc drive and food and beverage sales were the drivers.

Speaker Change: Overall I am pleased with our first quarter results. This year we expect once again to deliver value to our shareholders through record fiscal 2025 sales and earnings.

Speaker Change: Now I'll turn it over to Brad, who will provide more details on the financials and our outlook for fiscal 2025. Brad?

Brad: Thanks, Todd. Good morning, everyone. Before discussing our first quarter results, I want to take a moment to thank Scott for his leadership and the smooth transition over the past several weeks. I'm excited for the opportunity to lead the finance and IT functions at Donaldson and to build upon all the great work that has been done.

Brad: Now, on to results for the quarter and our outlook for the full year. Note that my profit comments will exclude the impact of the restructuring charges Sarika referenced earlier.

Brad: First quarter total company sales were up 6% versus 2024, operating margin was up 20 basis points, and EPS of 83 cents increased 11% year-over-year.

Brad: Gross margin of 35.6% was flat to the prior year. Benefits from select input cost deflation were offset by increased costs, including investments in manufacturing, efficiency, and distribution, which allow us to better serve our customers.

And we also had higher labor costs.

Brad: Operating expenses or rate of sales was 20.7% compared with 20.8% a year ago. Leverage on higher sales was partially offset by an increase in people-related costs.

Brad: This expense leverage increased operating margin to 14.9% from 14.7% in 2024.

Now a few comments on segment profitability.

Brad: Mobile Solutions' pre-tax profit margin was 18.3 percent, up 120 basis points year-over-year, driven by higher volume, favorable mix related to replacement part sales, and lower select input costs.

Brad: Industrial Solutions pre-tax profit margin was 15.9 percent, down 170 basis points due to a couple of things. We had increased costs, including those related to our footprint optimization initiatives, combined with an unfavorable mix of sales.

Brad: Importantly, our industrial backlogs remain high. As we work down our backlogs through the balance of this year, we expect profitability to improve as we get leverage on higher sales.

Brad: Life Sciences had a pre-tax loss of approximately five million dollars in the quarter, including a headwind from acquisitions as we continue to ramp those businesses up.

Brad: Pre-tax margin was a loss of 7.6% versus a loss of 7% a year ago.

Speaker Change: As Todd mentioned, we took actions this quarter to focus our expenses towards the top opportunities given the difficult market backdrop. There is no change in our commitment to expanding in life sciences, and we remain confident in our ability to win in this highly attractive market.

Turning to a few balance sheet and cash flow highlights.

Speaker Change: First quarter capital expenditures were $25 million, cash conversion in the quarter was 47% in line with our expectations, and in terms of other capital deployment, we expanded our reach within the life sciences market through a $71 million investment that got us a 49% stake in Medica SPA.

Speaker Change: We also returned approximately $107 million to shareholders, inclusive of $32 million in dividends and $75 million in share purchase.

Speaker Change: Our strong cash flow generation and disciplined capital deployment allows us to maintain a healthy balance sheet, evidenced by our net debt to EBITDA ratio of 0.6 times.

Speaker Change: Now our fiscal 25 outlook. First on sales. We continue to expect full-year total sales to increase between 2% and 6% which includes a pricing benefit of approximately 1%.

Speaker Change: For mobile solutions, we're forecasting sales between flat and up 4%, consistent with previous expectations.

Speaker Change: Off-road sales are projected to be up low single digits due to market share gains, partially offset by depressed and market conditions, particularly in agriculture.

Speaker Change: On-road sales are forecast down low double digits due to weak global truck production.

Speaker Change: Aftermarket sales are expected to be up low single digits versus the prior year, driven by market share gains and strong vehicle utilization.

Speaker Change: In industrial solution, sales are projected to increase between 4% and 8%, also in line with our previous guidance.

Speaker Change: IFS sales are forecast to grow high single digits with strength across most businesses, including dust collection, industrial hydraulics, and industrial gases.

Speaker Change: Aerospace and defense sales are projected to be flat after lapping very strong comps in 2024.

Speaker Change: For Life Sciences, our sales outlook is also unchanged. We're forecasting low double-digit growth driven by increases in our larger businesses including disk drive and food and beverage.

Speaker Change: Given our segment growth expectations, combined with our commitment to growing these businesses through targeted, strategic investments, we continue to expect the Life Sciences full-year pre-tax profit will be about break-even.

Speaker Change: Total company operating margin expectations are unchanged and within a range of 15.3% and 15.9%.

Speaker Change: The midpoint of this range represents a 20 basis point increase from the prior year, a record for Donaldson, and a return of value to shareholders through higher levels of profitability on higher sales.

Speaker Change: In terms of adjusted EPS, we are reaffirming our guidance range of $3.56 to $3.72.

up from 342 in fiscal 2024.

Speaker Change: Now on to the balance sheet and cash flow outlook. Our capital expenditures forecast is $85 million to $105 million and is weighted towards growth initiatives including capacity and new products and technologies.

Speaker Change: Cash conversion is expected to be in the range of 85% to 95% in line with historical averages.

Speaker Change: With respect to capital deployment, our priorities continue to be, first, investing to grow the company, organically as I just outlined, and inorganically through strategic M&A.

Second dividends.

Speaker Change: Calendar 2024 will mark Donaldson's 69th consecutive year of paying a quarterly cash dividend and the 29th year in a row of annual dividend increases.

Speaker Change: We are proud to be a part of the S&P High-Yield Dividend Aristocrat Index, and we expect to maintain our membership. Third and lastly, share repurchase. This year we expect to repurchase between 2% and 3% of outstanding shares.

Speaker Change: Overall, we are in a strong position to deliver our full year 2025 financial and strategic objectives. Now, I'll turn the call back to Tod.

Tod Carpenter: Thanks, Brad. When we completed the organizational redesign of Donaldson Company two years ago, we did so to better serve our end market customers.

Speaker Change: The intent was to enable a more efficient deployment of resources and to strengthen commercial execution.

Our results are proof of our success.

Speaker Change: We have gained share in several businesses, including Mobile Solutions Aftermarket, Industrial Dust Collection, Aerospace and Defense, and Disc Drive.

Speaker Change: Through our filtration technology expertise, we have expanded our addressable market and grown a diversified portfolio of businesses with strong long-term fundamentals.

Now, we're focused on building on this success.

Speaker Change: While we continue to optimize our expense base in response to macro conditions, we are intent on capitalizing on our growth potential through impactful strategic investments in all three of our segments.

Speaker Change: In mobile, our teams are focusing on building our alternative power solutions business. We are enablers of a greener and more efficient modern economy and are committed to helping our customers achieve their sustainability goals through advanced filtration.

In industrial, connectivity and services will support future growth.

Speaker Change: We are strengthening customer relationships by providing smart, connected solutions that provide real-time performance information, reducing equipment downtime, and decreasing total cost of ownership, including maintenance.

Speaker Change: In life sciences, we are targeting investments in the scaling of our bioprocessing businesses and strengthening our ability to gain share in businesses like food and beverage.

Speaker Change: All of this is underpinned by the talent and fortitude of the Donaldson team, which, combined with our balanced growth strategy, position us well to deliver on our fiscal 2026 financial targets.

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 would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Speaker Change: Your first question today comes from a line of Angel Castillo from Morgan Stanley. Your line is open.

Angel Castillo: Good morning and thanks for taking my question and congrats on another strong quarter here.

Speaker Change: Just wanted to touch base on, maybe just to start on the pre-cash flow conversion you mentioned that that's kind of in line with your expectations, but just give us a little bit more color on maybe the 47% conversion and just, as you think about, it seems like it was maybe more kind of working capital, just kind of those drivers and maybe how you get back to that 85 to 95% for the year.

and the

Speaker Change: Hi Angel, this is Brad. Yes, you're right. It's about working capital investments. And as Todd and I both touched on a little bit, investments, especially in inventory, to get on-time deliveries in good shape and make sure we're delivering for the customers. So that's really the story. And then it just sort of cascades through the year as we expect more sales in the build and the typical stronger second half and better use of working cap as we go through the year.

Speaker Change: Okay, that's helpful. And then on life sciences, I was wondering if you could kind of break out a little bit more, just remind us how much disk drive is, and likewise, maybe how much FMB was, particularly as you think about kind of the international expansion. I'm going to call it on that. And then just kind of the last piece on the kind of underlying life sciences vertical as well. You know, how much each of those kind of makes up a particular 25.

Speaker Change: So we typically don't break out the details on the specific businesses. But I would say that the thing to keep in mind with this drive is, remember, about a year and a half ago, we cratered off the bottom. That market collapse, which was very well documented publicly, created a big pressure on our businesses. And so the growth rates and the growth this year are just continuation of that, along with some share gains there.

Speaker Change: Yeah, just maybe a little bit more. It's just a re-normalization overall and market within disk drive is what's taking place.

Speaker Change: Understood. Thank you. Brian, looking forward to working with you and Scott. Congratulations and wish you all the best in your retirement. Thank you.

Speaker Change: Your next question comes from a line of Brian Blair from Oppenheimer. Your line is open.

Last morning at R1.

Speaker Change: Good morning. Scott, thank you for all your help over the years. It's been a pleasure. Thanks, Brian. And Brad, obviously, congrats on the promotion. Well deserved. Thanks, Brian. Appreciate it.

Thank you.

Speaker Change: Of course, one of the levels that a little bit on mobile aftermarket results remain encouraging there. We're still lapping or were lapping OE channel destocking from last year. Was that the source of all of the double-digit growth on that side? And then on independent channel, is it strictly share gains that that continues to drive growth there? And what are you contemplating on that front in the reiterated guide?

Todd Carpenter: Yeah, Brian, this is Todd. So when you look at our aftermarket performance, the big story is share gains. It's share gains with a large customer that we talked about, Napa, before. It's also share gains across the independent channel.

Todd Carpenter: It's a slight lapping of the destocking on the OE side and returning back to normal pull-through levels.

Todd Carpenter: let's say. But the story within our aftermarket organization is share gains and they're pretty broad as evidenced by, you know, almost double digit growth across all regions of the world.

I appreciate the color.

Speaker Change: And on price-cost, sorry if I missed a detail, how did that shake out in...

Speaker Change: In Q1, and assuming the 1% price realization that you've got it in current visibility on costs, how's your team thinking about price loss impact and cadence over the coming quarters?

Hi Brian, it's Brad.

Speaker Change: So price cost, you pointed out, it was about 1% in the quarter. The thing to keep in mind is pricing it as a much more normal level now. This is typically what we'd expect is in that low single-digit range. And we would see that for the rest of the year, about 1% in the quarter. We guided to 1% for the whole year.

So that averages out pretty similarly.

Speaker Change: The point on cost is, it's still kind of a mixed bag. Some are up, some are down. Labor's up, certain input costs are up, certain input costs are down.

Speaker Change: So, I would say from our side, the teams are working really hard to balance that, and obviously we want good relationships with our customers too, so that's something we have to take into the equation. But for us, the way we sit right now, we think it's pretty well balanced.

Okay, understood. That's helpful. Thank you.

Speaker Change: Your next question comes from a line of Brian Drab from William Blair. Your line is open.

Brian Drab: Thanks for taking my questions. Hi Brad, nice to have you back and Scott, congrats again. Thank you.

Brian Drab: Just a couple questions, and Todd, you touched on it a little bit, I think, but can you elaborate on how you're thinking about and what you're seeing from your customers and the environment post-election?

Brian Drab: You know, you mentioned that maybe there are some power project delays, and I'm just wondering, like, have there been...

Brian Drab: Other challenges in the business kind of leading up to the election or project delays that you're seeing that you think might get released now, and just the overall environment, and then, you know, any concerns you have, or how are you thinking about the tariff situation or potential situation?

Brian Drab: Yeah, Brian, so when you really look at the macro across the company and the overall broad-based portfolio of businesses that we have, you know, the...

Brian Drab: The election really kind of normalizes, if you will. You get some positives in the power generation business, potentially, of course, based upon incoming administrations.

Brian Drab: position relative to that. We have some potential risks in the in the sense of tariffs, but I do want to mention that 75% of Donaldson's manufactured product to customers

Brian Drab: are manufactured within region to support that region. So we do not cross region a whole lot, and when we do, the U.S. remains as balancing company, for a balancing company, a net exporter. So the tariff story for us is really more of a, should they go within region, North and South Mexico and Canada, clearly we would feel some pressures there. It's just uncertain what's gonna happen. I think the bigger story for us would be more what happens in the raw materials sector in the last Trump administration. They really hit tariffs on steel, and steel is our number one commodity.

Speaker Change: Robert Mason, Scott Robinson, Adam Farley, Nathan Jones, Sarika Dhadwal, Brian Blair,

Speaker Change: relative to manufacturing expansion, relative power generation expansion, and just generalized improved economy across the U.S. clearly would give us a nice bump as well.

I'm sorry. I'm sorry. I'm sorry. I'm sorry.

Speaker Change: Okay, thanks. And then just some of the IFS business you mentioned.

Speaker Change: Again, you mentioned this power project timing, you've got an up 1% result for this quarter, but up high single digits forecast for the full year. Can you just give us a little confidence or a window into what you're seeing for the back half of the year? Maybe this project that was delayed is going to hit, etc.?

Speaker Change: Yeah, it's just timing. That business always has timing kind of hanging over it. The projects just float on delivery from one quarter to the next. But at the macro, as we see relative to our backlogs...

Speaker Change: in that business are strong. They clearly support our forecast. There's potential upside there. We're already filling in some of the backlog for next fiscal year. It's a pretty solid business cycle in power generation at this point.

Speaker Change: Hey Brian, this is Brad. I'll just add one thing that's a bit more of the math on IFS specifically. Unlike most of the rest of the company, IFS toughest comp is actually in the first quarter of last year, whereas the rest of the company, this is one of our easier comps.

Speaker Change: IFS builds as a result of that too, so just keep that in mind please.

Yeah, perfect. Thank you.

Speaker Change: Your next question comes from a line of Laurence Alexander from Jefferies. Your line is open.

Speaker Change: Hi, good morning. This is Dan Rizzo on for Lawrence. You mentioned restructuring and reducing costs within life sciences. I was wondering where we are in terms of which ending, I mean, is that, was that, is that going to continue to the end of the year? Once we expect, I mean, that the business to be kind of right sized.

Speaker Change: Yeah, so where we are within the cycle of that is that the macro of the life sciences businesses we've been talking about, clearly the end market conditions within the life sciences have really met with some headwinds. Larger CAPEX-based projects, so what we would call upstream of the overall bioprocessing cycle, has really slowed. And then the downstream products.

Speaker Change: have really, those projects have elongated. And it's typical in a Donaldson business when, say, a mobile solutions project elongates, it'll slip by one quarter or two, but a life sciences project slips by one year and sometimes two. And so consequently, you know, we round all that up and took a solid look at where we are and where the market condition is and we adjust it. At this point, we have made the adjustments that we have planned. We continue to look at standard work across every business inside Donaldson Company.

Speaker Change: where we are, meet the end market conditions as well, and should there be further necessary actions, clearly we'll take them, but we feel like at this point in time we're in a good spot to execute a longer term our strategic plan and deliver on our guide, which is to return the business to

flat profitability within the fiscal year.

Speaker Change: Okay, and then within, sorry, within bioprocessing, I mean, once you're restructured, are you going to need any macro improvement to kind of get beyond returning to just basic profitability? Can you grow from a smaller footprint if nothing really gets better for the next, you know, three to five years?

Speaker Change: Yes, we can. What we've really done is we had a broader base list of projects that we were working on in order to re-market, and so we just focused those projects, if you will. We really kind of sharpened our pencil relative to our choices.

Speaker Change: because the market appears to be a little bit slow to take on some of those new opportunities that we were starting to press.

Speaker Change: So we backed down away from those, we elongated those out, and said, hey, look, we'll put those on the to-do list and the now list, and we really focused our attention on what we can deliver quicker in order to monetize.

Speaker Change: Okay, and then finally, last question. You mentioned that you saw a little bit of acceleration off-road after five quarters of things have climbed. Do you think we've reached an inflection point where things should start to get better, or is it really too soon to tell if there is actually a real rebound there?

Speaker Change: Yeah, tough to say, you know, we're just kind of aggregating all the inputs across the customer base at this point in time. But it is tough to say on that first fit size.

Speaker Change: You know, we follow all the agriculture news, which continues to get a little bit tougher, the construction news is a little bit more muted, if you will.

Speaker Change: But one of the other stories that we have, obviously a positive one is China is China, China, China, China, China,

in the in the quarter.

but

Speaker Change: But China didn't feel like an inflection point where we're drawing a line forward. It just felt like a moment. And so consequently, we'll just keep our eye on that. It's also too soon to call anything on China. So there's just a bowl of uncertainty out there, and we'll just keep our eyes on it.

Thank you very much.

Speaker Change: Your next question comes from a line of Nathan Jones from Stiefel. Your line is open.

[inaudible]

Good morning, this is Adam Farley on for Nathan.

Speaker Change: I wanted to follow up on the aftermarket question. Hey, good morning. I wanted to follow up on the aftermarket question. How should we think about the underlying demand level there, kind of adjusting for the destocking comps and the market share gains?

Speaker Change: Is it kind of steady Eddie or are you seeing any acceleration there?

Speaker Change: Yeah, so if you really take a look at overall vehicle utilization, it's steady, there's not really an expansion, if you will, taking place.

Speaker Change: which really speaks to my earlier comment, that the story of our quarter and the story of what's taking place in mobile solutions aftermarket for a Donaldson company is share gains. We're executing extremely well. We're making the necessary investments such as standing up new distribution centers to take care of our customers extremely well.

Speaker Change: there'll be more of an economic uptick. Clearly, we're positioned well to take advantage of that up cycle. But in the meantime, we'll just continue to win share and move forward. Maybe this is a good moment to suggest that, when you look at our mobile solutions after market business.

Speaker Change: And as we enter Q2, November, December, and January, that's typically our toughest quarter, right? And so, because you're not planting, and you're not harvesting, and there's not a whole bunch of construction projects going on, so I do want to remind you, as you build your models out, that Q2 is a little bit softer, typically, historically, for a downsing company, but we do still expect to deliver positive things.

Okay.

Very helpful, Collier. Thank you for taking my question.

Speaker Change: Your next question comes from a line of Rob Mason from Baird. Your line is open.

Speaker Change: Yes, good morning. Thanks for taking the question. Maybe, Todd, just to kind of follow up on your last comment, are you still thinking about the year, kind of breaking down first half versus second half, 48-52?

Does that percentage change any?

Speaker Change: No, it hasn't changed. We said last time, closer to 49-51, we're actually right about in the middle between a 48 and a 49, if you build your models out.

Speaker Change: So it could it could swing a tenth or two tenths and and round down or up. So You know, we're okay. We're right there. And again, I do want to Rob because you Your model is exceptional. I do want to remind you that Q2 is typically

Speaker Change: Because of the holidays and such, as you look to your 48, 49%, that's usually the toughest Q of the year.

Speaker Change: Yeah, yeah, makes sense. You didn't, you know, of course you didn't change your outlook for any of the segments. So, including aerospace defense, you got off to a really good start.

Speaker Change: I mean, your guy just looks conservative based on the first quarter start, but do you have visibility just on shipment timing to support that, or should we think there's potential upside to that airspace defense?

Speaker Change: Yeah, thanks. Thanks for the question. So, so we know that we have a strong first quarter. What the guidance of F.L.A.T. really embraces is the fact that more than any other business inside Donaldson Company, we have supply chain bubbles there. Particularly, we have a couple of piece parts that are, that are really holding back.

Um, um, [inaudible]

seven-figure projects to be delivered.

Speaker Change: And so, should we be able to resolve those, there's clearly some upside, right? But right now, they are incredibly stubborn because we have been chasing them for over a year. And as you know, in aerospace and defense, when you want to recall and get a new supply,

Speaker Change: it's it's highly different than than the other businesses that we have and so that's why it's just been taken so long to try to drive down that supply chain challenge.

Speaker Change: But it does have upside should we be able to get the product in here.

Speaker Change: Rob, this is Brad. I'll just add on the cadence. Keep in mind, fourth quarter last year in this business was up around 40, 4-0 percent.

Speaker Change: There's clearly a comp story at the back end of last year, and part of that big jump was exactly what Todd just talked about. Some of these parts, as they come in, we'll sell it and send it as quickly as we can when we get the shipments from our suppliers.

Speaker Change: Understood. Okay, that's helpful. It's just last question. I'm curious, Medica was in the results this quarter. How did that influence the Lifescience nonprofit? Was it a contributor, detractor?

Speaker Change: to overall profit. Yeah, it was neither of those. I mean, essentially, it was immaterial in the quarter, rounds to zero. The biggest thing in the quarter was the cash outflow that I mentioned in my remarks, $71 million for the 49% stake.

Speaker Change: Yeah, yeah, okay, very good. Well, congratulations to both Scott and you, Brad. Thank you.

Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Tod Carpenter for some final closing remarks.

Tod Carpenter: That concludes the call today. Thanks to everyone who participated. We hope everyone has a nice holiday season and we look forward to reporting our second quarter fiscal 2025 results in February. Goodbye.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.