Donaldson Company, Inc. (NYSE:DCI) Q1 2024 Earnings Call Transcript

Tod Carpenter: 35.0 or 35.9. So we said we did 35.6 million, right, in the quarter. We said we’re going to sequentially step down, but we are going to have us 2 or 3 and 4, we should pretty much have year-over-year gross margin growth. So I’ll let you triangulate it and work your calculus from there.

Rob Mason: Sure. Okay. Very good. Just last question. Just you did tweak the off-road as well as the on-road guidance lower. Understandably, I think, just given what we’re hearing. But if I think – I know the comps ease in off-road for the balance of the year. But if I think about that trending out just in revenue dollars, it seems to suggest that revenue dollars go up from here. That’s maybe counter a little bit of what we’re hearing from some of the producers. I’m just curious if the level of visibility around that as you think about for the remaining 3 quarters?

Tod Carpenter: Yes. If I just talk about the one off, I’ll start with the On-Road. Yes, we did go from up low single digits to flat. But I want to point out that it’s kind of nuanced. So we were up like plus 1, and now we’re flat. And so the overall dollar value of that is like zero to $5 million. So it’s not a lot of movement across the models on the On-Road sector. And so we would tell you that the On-Road sector really is kind of behaving as expected. It’s just a nuance, if you will. And then within the off-road sector, we did bring the off-road sector down as in our remarks commented by — or really highlighted by the ag pressures that we are starting to see. However, within the model, the second half in Off-Road is higher than the first half. So I’m not sure you have your model that way based upon the question, but it’s important to be that on a dollar basis.

Rob Mason: Yes. Yes, that was the inference. That was the case, but I was just – so you’re seeing those pressures in off-road now, but the production rates improve…

Tod Carpenter: Yes. But you have to realize that we’re coy a 48-52 first half, second half type of company. And based upon what we’re seeing, we have that type of a model built in ahead of us. And that’s kind of how we built it out and projected it.

Rob Mason: Understood. Okay. Very good, thank you.

Operator: Your next question comes from Brian Drab with William Blair. Please go ahead.

Brian Drab: Hi. Thanks for taking the questions. You obviously had stronger performance in the Aerospace and Defense segment and some share gains and wins there. Can you just elaborate on that? Was that win on the aerospace side or more on the defense side? It sounds like on aerospace and in a Cabana [ph] niche of the market where you’ve had a presence for a long time. So can you just elaborate on what’s happening there?

Tod Carpenter: Yes, it’s rotorcraft. So it’s new programs come on board with – now we’re delivering rotorcraft based project, and that is a very long-term program. So we would expect that new program to deliver for many years to come.

Brian Drab: Okay. Is that within a defense program? Or is that commercial?

Tod Carpenter: Yes. H-53K helicopter.

Brian Drab: Great. Okay. And then would you be able to provide an update on some of the bioprocessing pipeline stats that you’ve shared in the past? You talked recently about having 20 customers, prospective customers, I guess, and a pipeline of over $200 million in revenue, and you mentioned 20% of the pipeline path technical approvals. How is that going? And could you update any of those metrics?

Tod Carpenter: Yes. Just generally, Brian, I’d tell you that it continues to grow for us. We still have a really robust pipeline. The pipeline in the last quarter did grow. We continue to add out our sales staff, touching more customers and touching far more important than that, more laboratories at those customers. So we’re really pleased with the progress that we have. And we really have great momentum now. We are not prepared to update those numbers at this point in time. I would just tell you with certainty the numbers are higher.

Brian Drab: Thank you. Is some of the bioprocessing revenue starting to hit then in fiscal ’24 in a meaningful way such that that’s influencing your forecast for Life Sciences up 20% for the year after being down 4% in the first quarter?

Tod Carpenter: So what we have in the bioprocessing side, particularly related to the acquisitions that we have, for example, in Universal Technologies. And Soliris [ph] et cetera, is baked into the current guide. There is bioprocessing deliverables, I mean, revenue within the guide for sure.

Brian Drab: Okay, all right. Thank you, very much.

Operator: Your next question comes from Laurence Alexander with Jefferies. Please go ahead.

Dan Rizzo: Good morning. It’s Dan Rizzo on for Laurence. And thank you for taking my questions. So if we talk about pricing, I was just wondering how it works. Is this an ongoing discussion like monthly reviews or quarterly reviews? How often do you like go to your customers and just discuss the state of the world, so to speak.

Tod Carpenter: So you really have to parcel out the company into two buckets. So the first bucket is the independent aftermarket as well as our industrial-based businesses. That is more quick to change, and we take pricing action on an annual basis. We have returned back to a more normalized annual price action in the larger portion of the corporation. On that smaller portion, that 35% of the company, which is like that OEM or first-fit based project activity. Those would have longer-term contracts. And so that is typically now on a quarterly basis, but it is discussed because there’s ranges involved and there’s particular commodities involved. And so it’s pretty complex models that we continue to work through with the customers and perfect over time because there’s been a tremendous challenge on the last cycle that really challenged new models to be built, et cetera, and we continue to perfect those looking forward.