Donaldson Company, Inc. (NYSE:DCI) Q1 2023 Earnings Call Transcript

Scott Robinson: Yeah. So I mean we expect the majority of the operating income improvement to come from gross margin improvement. You had it right. Our second quarter is always our seasonally weakest gross margin quarter mainly due to all the holidays that fall in that hurts production, and that brings our margin down. So we’re expecting, I would say, relatively traditional seasonality for the company this year. And you can see we layered in this quarter, pretty significant pricing. So that will benefit the second quarter and the quarters going in. We are lapping pricing from last quarter. But we do expect year-over-year margin improvement for the rest of the year, which is what really drives that operating margin improvement, with the second quarter being the weakest.

Robert Mason: Okay. Maybe just a follow-up. Tod, you kind of touched on a balanced outlook for the year within your guidance. When we established the guidance, it portended a fairly strong confidence level around the first half and wider range of outcomes, potentially around the second half. Has your second half visibility improved any at all since September or degraded? I’m just curious, based on your order rates, fill rates, how you’re maybe thinking about the second half now?

Tod Carpenter: Overall, our visibility in the second half really hasn’t changed from the beginning of the fiscal year. We would say that the visibility that we do have supports the guidance that we have. We would tell you that we see typical structure first half, second half. Within this guidance, more like our typical behavior is 48% or 49% in the first half, 51% or 52% in the second half. We would expect that to really lay in that way for our company. We do believe the first half is a bit stronger on the comps in our balance guide than the second half. So for example, we just did $847 million and grew 11% in Q1, but keep in mind, in Q4 of last year, our number was $890 million. And so when you really take a look at all of that and really kind of layer that in, we really believe that we have a properly balanced approach to first half, second half, and we’re returning back to a more normal type of a cadence that we’ve seen in previous years.

Robert Mason: Very good. Appreciate it. Thank you.

Operator: We have no further questions at this time. With that, I’ll turn the conference back over to management for any closing remarks.

Tod Carpenter: That concludes the call today. Thanks to everyone who participated. I look forward to reporting our second quarter results in early March. Have a great holiday season, everyone. Bye.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.