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Analysts Have "Buy" Rating On This Mid-Cap Dividend AchieverDonaldson NYSE: DCI reported record fiscal 2026 results, including annual sales of $3.9 billion and adjusted earnings per share of $3.98, as the filtration company cited growth across its Mobile Solutions, Industrial Solutions and Life Sciences segments. Sales rose 5% from fiscal 2025, while EPS increased 8% and operating margin reached a record 16%.

For the fourth quarter, sales surpassed $1 billion for the first time, increasing 8% from the prior-year period. Adjusted EPS rose 12% to $1.15, while operating margin expanded 110 basis points to a record 17.5%.

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“Fiscal 2026 was another record year for Donaldson Company,” President and CEO Rich Lewis said, pointing to the company’s growth strategy, operational efficiency efforts and the acquisition of Facet Filtration.

Facet acquisition adds sales, creates near-term earnings dilution Donaldson acquired Facet on May 4, 2026, making the fourth quarter the first period in which the company reported combined results. The acquisition, the largest in Donaldson’s history, expanded its positions in aerospace and defense and power generation, according to management.

Chief Financial Officer Brad Pogalz said Facet added roughly three percentage points to fourth-quarter sales growth but reduced EPS by $0.06. Facet’s sales, gross margin and operating profit were in line with the company’s forecast, although amortization and interest expense were somewhat higher than expected.

For fiscal 2027, management expects Facet to dilute EPS by about $0.12, reflecting incremental amortization and interest expense. Pogalz said the acquisition is accretive on a cash basis after accounting for business performance and interest expense. Donaldson has already repaid more than $100 million of Facet-related debt and reported net debt-to-EBITDA leverage of approximately 1.4 times.

Mobile aftermarket growth offsets uneven first-fit demand Mobile Solutions revenue rose 8% to $635 million in the fourth quarter, supported by volume growth and pricing. Aftermarket sales increased 9% to $512 million, with growth in all regions and both channels. Lewis said the company posted double-digit growth in its independent channel and has begun realizing revenue from a major North American fleet win discussed in the previous quarter.

First-fit off-road sales were flat at $95 million, as construction strength offset muted agricultural demand. On-road sales increased 9% to $29 million as truck production began to rise, particularly in the U.S. and Europe.

Donaldson’s China business grew 27%, driven by a nearly 40% increase in original-equipment replacement-part sales. The company said it has been winning new off-road platforms and seeing demand from export markets.

For fiscal 2027, Mobile Solutions sales are expected to rise 2% to 6%. Management forecast mid-single-digit off-road growth, supported by construction while agriculture remains subdued, and high-single-digit on-road growth as global truck production increases. Aftermarket sales are projected to rise mid-single digits through share gains and higher vehicle utilization.

Industrial operations improve, though power generation remains a focus Industrial Solutions sales rose 8% to $334 million, including $30 million in Facet sales. Aerospace and defense revenue increased 61% to $76 million, though organic aerospace and defense sales declined 3% because of continuing supply-chain constraints.

Industrial Filtration Solutions, or IFS, sales declined 2% to $257 million. Lower dust-collection new-equipment volumes were partly offset by strong power-generation new-equipment demand. IFS replacement-part sales grew in the low single digits and represented 51% of total IFS sales.

Industrial Solutions pre-tax margin was 16.4%, down 450 basis points from the prior year. Pogalz attributed the decline to Facet-related expenses and amortization, organic expense deleveraging, and production-shift headwinds in power generation. Still, the segment’s margin improved 300 basis points sequentially from the third quarter.

The company continues to stabilize operations at a Mexico power-generation plant following a production shift. Pogalz said the issue created approximately 40 basis points of consolidated gross-margin pressure in the fourth quarter, though throughput and delivery performance have improved. Donaldson expects to fully recover by the middle of fiscal 2027.

Lewis also said the company expects to spend the first half of fiscal 2027 improving production at an Illinois facility following the closure of a California aerospace and defense site. Donaldson expects organic aerospace and defense sales to increase in the mid-teens during fiscal 2027 as it addresses supply constraints and works through elevated backlogs.

Life Sciences growth and fiscal 2027 outlook Life Sciences sales increased 10% to $90 million, led by double-digit disk-drive growth and solid food-and-beverage demand. The segment’s pre-tax margin rose 660 basis points to 11.9%, aided by volume leverage in higher-margin food-and-beverage and disk-drive businesses, as well as expense discipline.

Beginning in the first quarter, Donaldson will combine its food-and-beverage and microelectronics operations under the name Process Filtration. Lewis said the businesses share filtration technologies, engineering, manufacturing and regulatory capabilities. Management cited demand related to disk-drive HAMR technology, microelectronics, data-center artificial intelligence buildouts and liquid cooling.

For fiscal 2027, Donaldson forecast:

Total sales growth of 5.5% to 9.5%, with approximately two percentage points each from Facet and pricing, one point from currency, and the balance from organic volume. Operating margin of 16.6% to 17.2%, with the midpoint implying 90 basis points of expansion. EPS of $4.22 to $4.38, including approximately $0.12 of Facet-related dilution. Free cash flow conversion of 95% to 105% and capital expenditures of $70 million to $90 million. Management expects the second half of fiscal 2027 to account for about 52% of annual sales and 57% of operating profit, reflecting typical seasonality and anticipated industrial margin recovery. Donaldson also said it expects to repurchase roughly 1% of shares outstanding during the year, following the resumption of buybacks after the Facet acquisition.

About Donaldson (NYSE:DCI)Donaldson Company, Inc NYSE: DCI is a global provider of filtration systems and replacement parts for a wide range of industries. The company develops and manufactures air, liquid and gas filtration solutions for engine and industrial applications, helping customers improve performance, lower emissions and extend equipment life. Donaldson's product portfolio includes engine air intake filters, fuel filters, hydraulic filters, compressor filters, dust collection systems and gas turbine air intake systems.

Serving markets such as agriculture, construction, mining, power generation, aerospace and original equipment manufacturing, Donaldson operates through two primary business segments: Engine Products and Industrial Products.

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A month has gone by since the last earnings report for Donaldson (DCI - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Donaldson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Donaldson's Q3 Earnings & Revenues Top Estimates, Increase Y/YDonaldson reported third-quarter fiscal 2026 (ended April 30, 2026) adjusted earnings of $1.06 per share, which topped the Zacks Consensus Estimate of $1.05. The bottom line was up 7.1% on a year-over-year basis.

Revenue ResultsTotal revenues of $995.1 million surpassed the Zacks Consensus Estimate of $979 million. The top line increased 5.8% year over year.

Region-wise, Donaldson’s net sales in the United States/Canada increased 1.5% year over year to $427.1 million. Net sales increased 11.5% to $289.3 million in Europe, the Middle East and Africa.  Latin America generated net sales of $105.9 million, reflecting an increase of 4.4%. Also, net sales in the Asia Pacific improved 9.2% to $172.8 million.

Donaldson reports revenues under three segments, namely Mobile Solutions, Industrial Solutions and Life Sciences.

A brief snapshot of segmental sales is provided below.

The Mobile Solutions segment’s (accounting for 63.3% of net sales) sales were $629.9 million, indicating a year-over-year increase of 8.1%. Sales rose 8.8% in Off-Road and increased 5.2% in On-Road businesses during the quarter. Aftermarket sales improved 8.1% year over year.

Revenues generated from the Industrial Solutions segment (28.3%) were $281.7 million, down 0.6% year over year. Industrial Filtration Solutions' sales increased 2.3% year over year. Sales decline of 13.5% in the Aerospace and Defense businesses affected the results.

Revenues generated from the Life Sciences segment (8.4%) were $83.5 million, up 12.7% year over year. The results benefited from growth in new equipment volume in the Food & Beverage and Disk Drive businesses.

Donaldson’s Margin ProfileIn the fiscal third quarter, Donaldson’s cost of sales increased 7% year over year to $661.7 million. Gross profit increased 3.6% to $333.4 million. The gross margin of 33.5% declined 70 basis points due to operating inefficiencies associated with production shifts and costs related to footprint optimization initiatives. Selling, general and administrative expenses were $158.9 million, up 4.3% year over year.

Operating expenses were down 24% year over year to $178.1 million. Operating profit surged 77.7% to $155.3 million. The adjusted operating margin was 16.6%, up 30 bps year over year.

The adjusted effective tax rate was 23.8% compared with 22.1% in the year-ago quarter.

Balance Sheet & Cash FlowExiting the fiscal third quarter, Donaldson’s cash and cash equivalents were $204.1 million compared with $180.4 million in the fourth quarter of fiscal 2025. Long-term debt was $591.6 million compared with $630.4 million in the fourth quarter of fiscal 2025.

In the fiscal third quarter, the company generated net cash of $135.4 million from operating activities, indicating an increase of 54.4% year over year. Capital expenditure (net) totaled $23.8 million compared with $14.7 million in the year-ago fiscal quarter. Free cash flow increased 52.9% to $111.6 million.

It used $108.5 million to repurchase stocks and $104 million to pay out dividends during the first nine months of fiscal 2026.

Donaldson’s FY26 OutlookFor fiscal 2026 (ending July 2026), Donaldson expects adjusted earnings per share (EPS) to be in the range of $3.94-$4.01 compared with $3.68 in fiscal 2025. Organic sales are anticipated to increase 3-5% from the fiscal 2025 level.

On a segmental basis, Mobile Solutions’ sales are expected to increase 3.5-5.5% from the fiscal 2025 level. Industrial Solutions’ sales are envisioned to increase in the range of 0-2% from the year-ago figure. The company forecasts its Life Sciences segment’s sales to increase in the 9-11% range.

Interest expenses are predicted to be approximately $26 million, while other income is projected to be in the range of $17-$19 million. The effective tax rate is anticipated to be between 22% and 24%.

Capital expenditure is expected to be between $60 million and $75 million. Free cash flow conversion is anticipated to be in the range of 85-95%. Donaldson expects to repurchase 1.2% of its outstanding shares during the fiscal year.

How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in fresh estimates.

VGM ScoresAt this time, Donaldson has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Donaldson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.