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Donaldson Company, Inc. DCI
Q3 2013 Earnings Call Transcript

Transcript Call Date 05/17/2013

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Donaldson Company's Fiscal Year 2013 Third Quarter Conference Call Webcast. During today's presentation, all parties will be in a listen-only mode. Following the presentation, there will be a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded today, May 17, 2013.

I would now like to turn the call over to Rich Sheffer. Please go ahead, sir.

Richard Sheffer - IR: Thank you, Greg. Following this brief introduction, Bill Cook, our Chairman, President and CEO and Jim Shaw, our Vice President and CFO, will review our third quarter earnings and our updated outlook for the balance of 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. There are three key messages that we're going to spend the majority of our time discussing today. And just to summarize, the first is that economic conditions are still challenging in a number of our end markets; second that despite these conditions by aggressively focusing on what we can control we are operating our Company very well. A few examples of this include our record operating margin percent and our second best quarter ever for cash flow generation. And third and finally, we remain confident of our long-term growth opportunities and are continuing to execute and invest in support of our strategic growth plan.

I'll begin by discussing our third quarter sales and then Jim will discuss our operating performance and then I'll conclude our presentation by discussing our outlook. So, now talking about our sales by segment, the story in our Engine Products segment is very similar to last quarter. Conditions in our Ag equipment market, especially for large farm equipment, remained strong, while our other Engine OEM end markets had another weak quarter, with on-road truck sales decreasing 24% and off-road equipment sales decreasing 4%, both in local currency. Excluding the Ag sector, many of our OEM customers continue to schedule their production levels below last year to reflect the drop-off in their end user demand for new equipment and also to reduce their own finished good inventory levels.

Among those end markets that had notable decreases were the North American and Asian heavy truck and the global construction and mining equipment markets. While some recent economic reports suggest that end user conditions may be starting to improve in some of these markets, a number of our customers have reported that they are still working to reduce their own new equipment finished good inventories. Therefore, we believe it will take several more months for our customers' productions rates for new equipment to prove enough for our businesses serving those markets to post year-over-year growth.

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