Donaldson Company, Inc. (NYSE:DCI) Q2 2019 Earnings Conference Call Transcript

Mar 06, 2019 • 10:00 am ET

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Donaldson Company, Inc. (NYSE:DCI) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, my name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donaldson Second Quarter Fiscal Year 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Brad Pogalz, you may begin your conference.

Executive
Brad Pogalz

Good morning. Thank you for joining Donaldson's second quarter 2019 earnings conference call. With me today are Tod Carpenter, Chairman, CEO and President of Donaldson; and Scott Robinson, Chief Financial Officer. This morning, Tod and Scott will provide a summary of our second quarter performance and an update on our 2019 plans.

During today's call, we will reference non-GAAP metrics such as adjusted earnings. You can find a reconciliation of GAAP to non-GAAP metrics within the schedules attached to this morning's press release. I want to remind everyone 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.

I also want to remind everyone that we will be hosting an Investor Day on Tuesday, April 9. Members of our management team will be providing an in-depth review of our businesses and strategic priorities. So I invite all of you to participate via the live webcast. Details of the event can be found on our Investor Relations website or please feel free to reach out to me with questions.

With that, I'll now turn the call to Tod Carpenter. Tod?

Executive
Tod E. Carpenter

Thanks, Brad. Good morning, everyone. We are pleased to have delivered another quarterly record for sales and EPS, while adjusting to an operating environment that was increasingly mixed. Within the quarter, we saw a broad-based slowdown in December that led to softer than expected results. While overall trends improved in January, weather-related challenges in the US moved a couple of million dollars of sales into February. Currency translation was another headwind for sales with a larger than expected impact of 3% in the quarter. Including the increased impact from currency and the slowdown in December, we still expect strong full year sales growth of 5% to 9%, or 8% to 12% without currency. Importantly, we maintain our operating margin forecast, which is up 40 basis points to 80 basis points from last year.

Scott will provide more details later in the call. So, I'll now turn to an overview of second quarter sales. Total sales were $704 million, which is 5.9% above last year, or 8.6% without currency. Both segments enjoyed similar increases, including pricing benefits of more than 1%. The 6% growth in Engine was led by On-Road, which was up 22%. Second quarter sales in the US were up 32%, and On-Road sales grew 80% in China. The US continues to benefit from increasing production of Class A trucks, and China is all about share gain.

As Chinese always develop higher-performing equipment to compete at a global level, they