This morning, Todd and Brad will provide a summary of our Q1 performance and our outlook for fiscal 2026. Donaldson Company's Q1 results were strong, and I'm proud of what our team was able to accomplish: growing sales, operating profit margin, and earnings. Expanded operating profit margin to a record 15.5%, driven by leverage on higher sales and cost optimization initiatives. For example, we continue to gain share in the independent channel, where sales grew nearly double digits.

While cyclical headwinds continue, our largest first-fit business, Off-Road, grew for the second consecutive quarter with supportive end market conditions in construction more than offsetting muted conditions in agriculture. In Industrial Solutions, our power generation business is robust, supported by the current electricity demand supercycle, including data center and AI infrastructure buildouts. Dust collection replacement part sales growth was solid, another example of our razor-and-blade strategy at work as we continue to build out our service and aftermarket capabilities. In Life Sciences, we're excited by the market share we are gaining in food and beverage, where sales grew over 20%.

Our commitment to serving our customers through any market conditions while maintaining high on-time delivery rates is driving demand, and our backlogs are reflective of the confidence our customers have in Donaldson. We are also building for our future through our disciplined investments in R&D and capital expenditures. This quarter, these included continued focused investments in growth areas such as solvent recovery, new disk drive technologies, and air and alternative fuels filtration. This marks the fifth consecutive quarter of growth, and we recently won another hydraulics program with a top agriculture equipment manufacturer, another sign that customer trust in Donaldson is building in this massive market.

What went well
  • Q1 sales grew 4% year-over-year to an all-time Q1 high of $935 million, with growth across many key businesses including mobile aftermarket, power generation, food and beverage, and disk drive.
  • Operating margin expanded 60 basis points to a Q1 record of 15.5%, driven by leverage on higher sales and cost optimization initiatives, with an incremental margin over 30%.
  • Record earnings per share of $0.94 came in 13% above prior year, and cash conversion was strong at 101% on improved working capital management.
  • Mobile Solutions aftermarket sales grew 7% to $480 million with the independent channel up nearly double digits, and off-road grew 6% for a second consecutive quarter as construction offset agriculture weakness.
  • Life Sciences margin improved notably to 9.2% from a 7.6% loss a year ago, with food and beverage and disk drive each growing over 20%.
  • The estimated annualized tariff impact was reduced to approximately $25 million from $35 million previously, and the company raised its full-year operating margin and EPS outlook.
What went wrong
  • On-road sales of $23 million declined 27% as a result of decreased global truck production.
  • Industrial Solutions sales were flat at $258 million and pre-tax margin fell to 12.5% from 15.9% due to unfavorable sales mix and loss of leverage on operating costs.
  • Aerospace and Defense sales of $42 million decreased 7%, driven by softer defense sales following the completion of a few large projects.
  • Gross margin was 35.4%, down 20 basis points from the prior year as increased operating costs were only partially offset by pricing.

Guidance Changes

MetricPeriodCurrent guidance
Total sales growthFY20261% to 5% (reiterated, ~1% pricing) (reaffirmed)
Operating marginFY202616.2% to 16.8% (raised 10 bps), record 16.5% midpoint (raised)
EPSFY2026$3.95 to $4.11 (raised $0.03), $4.03 midpoint (raised)
Incremental marginFY2026more than 40% (raised)
On-Road salesFY2026flat versus 2025 (projects pushed beyond fiscal year) (lowered)
Cash conversionFY202685% to 95% (reaffirmed)
Mobile Solutions salesFY2026flat to up 4% (reaffirmed)

Performance Breakdown

MetricYoYNote
Total sales +4% to $935M Growth across mobile aftermarket, power generation, food and beverage, and disk drive
Adjusted EPS +13% to $0.94 Higher sales, operating margin expansion, and cost optimization
Operating margin +60 bps to Q1 record 15.5% Expense favorability and leverage on higher sales
Gross margin -20 bps to 35.4% Increased operating costs only partially offset by pricing, though better than internal expectations
Mobile Solutions sales +5% to $598M Aftermarket up 7% on OE and independent channel strength; off-road up 6%
On-Road sales -27% to $23M Decreased global truck production
Industrial Solutions sales flat at $258M IFS up 2% offset by A&D down 7% on softer defense
Industrial Solutions pre-tax margin -3.4 pts to 12.5% Unfavorable sales mix and loss of leverage on operating costs
Life Sciences sales +13% to $79M Double-digit growth in food and beverage and disk drive plus upstream project timing
Life Sciences pre-tax margin +16.8 pts to 9.2% (from -7.6%) Higher margin food and beverage and disk drive sales plus prior optimization benefits

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
TariffsTargeting profit neutral; ~$35M annualized estimateAnnualized estimate cut to ~$25M; successfully offset through pricing and supply chainImproving
Footprint optimizationHeavy lift phase, mostly complete by 2H FY26Structural benefits to date very limited; building benefit toward back halfProgressing
Power generation super cycleOrder books full through fiscal yearOrder books full through rest of fiscal year, supported by data center and AI buildoutsImproving
Disk drive / HAMR technologyInvesting in new capabilitiesGrew over 20% on share gains and AI/cloud demand; a couple percent of total salesImproving
Connected dust collectorsTargeting over 30% increase in connected machinesOn target to connect 2,000-3,000 dust collectors this yearStable
Regional demandChina cautious; mixed by regionEurope strengthening, US more careful but solid, China up but not yet a recovery callImproving

Q&A Summary

What was IFS first-fit vs aftermarket, and are you still targeting 30% more connected machines?
Both first-fit and replacement were up with power generation doing very well; the company expects to connect 2,000-3,000 dust collectors this year, on target.
What structural benefits from footprint optimization have been realized to date?
Benefits to date are very limited; a $9 million gain on sale reflects a completed UK plant, and the next tranche is startup/ramp at new production homes building toward the back half of fiscal 2026.
Why is Q1 pricing 2% but full-year guide around 1%?
Pricing is in a normalized post-COVID cycle with costs well managed; the company is pricing competitively, consistent with the guide.
What drove the industrial decrementals this quarter?
It was roughly flat for the segment with pressure from higher operating costs and expense deleverage, plus lumpy A&D and IFS project timing; expected to build through the year.
What is driving disk drive and how large is the business?
AI and cloud storage demand plus HAMR technology drive share gains and market upturn; it is a couple percent of total Donaldson sales and expected to keep growing along the secular trend.
Why raise guidance after Q1 when you sound careful regionally?
The diversified portfolio's highs are higher than the lows on the step down, share gains are strong, and the company prioritizes transparency, giving confidence to raise rather than hold back.

More on DONALDSON Co INC

Reported 2025-12-04 · figures from the DONALDSON Co INC Q1 2026 earnings call.

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