Donaldson Company, Inc.

Fourth quarter sales increased 8% year over year, adjusted EPS was $1.15, operating margin was 17.5% and gross margin was 36.7%, up 190 basis points. Richard Lewis said Q4 sales surpassed $1 billion for the first time, while Bradley Pogalz said Facet added about 3 percentage points of sales growth and diluted EPS by $0.06. For fiscal 2026, sales were $3.9 billion, up 5%, EPS was $3.98, up 8%, and operating margin was 16%. Looking to fiscal 2027, management guided to sales growth of 5.5% to 9.5%, operating margin of 16.6% to 17.2%, EPS of $4.22 to $4.38, interest expense of $55 million to $60 million, capex of $70 million to $90 million, and free cash flow conversion of 95% to 105%.

Richard Lewis framed fiscal 2026 as another record year and emphasized that Donaldson is winning through a balanced growth strategy across mobile, industrial, and life sciences. He highlighted share gains, aftermarket strength, higher-margin growth, and the strategic importance of the Facet acquisition, saying it expands the company into durable end markets like aerospace and defense and power generation. His tone was confident and upbeat, while also acknowledging that industrial will face some first-half pressure before recovering later in FY27.

Bradley Pogalz focused on the mechanics behind the quarter and the FY27 bridge. He said Q4 operating margin hit an all-time high of 17.5%, gross margin reached a company record 36.7%, and the quarter included facet-related dilution plus higher amortization and interest, with fiscal 2027 interest expected at $55 million to $60 million versus $36 million last year. He also noted the company has already paid down over $100 million of facet-related debt, leverage is about 1.4x net debt to EBITDA, capex should be $70 million to $90 million, and cash conversion is expected at 95% to 105%.

Analysts focused on whether the FY27 margin guide implies hidden operational headwinds, why facet dilution is only about $0.12 for the full year versus $0.06 in Q4, and whether supply chain constraints in aerospace and defense will unwind on the timeline needed for mid-teens organic growth. Management said the main industrial pressures are acute and concentrated in power generation and the Mexico plant transition, with recovery expected in the second half, and explained that facet dilution is lower in FY27 because Q4 had a heavier purchase-accounting and amortization impact plus some debt paydown. On aerospace and defense, management said the California-to-Illinois facility move is the key operational issue and expects the first half of the year to work through the backlog and normalize production.