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Donaldson Co Inc DCI
Q2 2013 Earnings Call Transcript

Transcript Call Date 02/25/2013

Operator: Good morning ladies and gentlemen, thank you for standing by. Welcome to the Donaldson Q2 Earnings Conference Call Webcast. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session and instructions will be provided at that time.

I would like to remind everyone that this conference call is being recorded today, Monday February 25, 2013 at 9.00 am Central Time.

I will now turn the conference over to Mr. Rich Sheffer, Assistant Treasurer and Director of IR. Please go ahead sir.

Richard Sheffer - IR: Thank you, Ron and welcome to Donaldson's fiscal 2013 second quarter earnings conference call and webcast. Following this brief introduction, Bill Cook, our Chairman, President and CEO and Jim Shaw, our Vice President and CFO will review our second quarter earnings and our updated outlook for fiscal '13.

Next, I need to review our Safe Harbor statement with you. Any statements in this call regarding our business that are not historical facts are forward-looking statements, and our future results could differ materially from the forward-looking statements made today. Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings.

Now, I'd like to turn the call over to Bill Cook. Bill?

William M. Cook - Chairman, President and CEO: Thanks, Rich, and good morning, everyone. Those of you who have followed our company know that we've been focused on building a diversified portfolio of global filtration businesses over the past 25 years. During our second quarter, this diversified portfolio worked again to our advantage as our Gas Turbine product sales increased 79%, offsetting decreases in our Engine Product businesses and helping to deliver an overall 3% increase in company sales during the quarter.

And I'd like to take a few minutes to review the sales trends within each of our reporting segments starting first with Engine Products. Except for agricultural equipment markets, where conditions for large farm equipment remained strong, our other engine OEM end markets had a slower quarter. Many of our OEM customers cut back their production levels to reflect the drop-off in end-user demand for equipment and also to reduce their own finished equipment inventory levels. Among those end markets that had notable decreases were North American and Asian heavy truck and the global construction and mining equipment markets.

While recent economic report suggests that conditions are starting to improve in some of these end markets, many of our customers have recently reported that they're still working to reduce their finished equipment inventories. Therefore, we now believe it will take several months for our customer's production rates to improve enough for our businesses serving these end markets to post year-over-year growth. We did however see better conditions in our Engine Aftermarket where we supply replacement filters and mufflers through both our OEM and independent channels. Our Engine Aftermarket businesses in North America, Latin America and Asia all grew at least 4% in the quarter. Only our European aftermarket business was down year-over-year.

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