Snapshot
DONALDSON Co INC reported $981M of revenue in Q4 2025, up 4.8% year over year, with diluted EPS of $0.97 and an operating margin of 15.5%.
- Revenue
- $981M
- YoY growth
- +4.8%
- Diluted EPS
- $0.97
- Operating margin
- 15.5%
What management said
- •I will start with some full-year highlights, discuss our fourth quarter performance, and touch briefly on our expectations for fiscal 2026.
- •We ended the year on a high note, and I will provide some details on the fourth quarter, including by segment.
- •In Mobile Solutions, our strength in aftermarket is contributing to record results as we continue to win and gain share in our independent channel, which eclipsed $1 billion in sales this year.
- •Create in dust collection we are building new customer relationships and our OE channel sales hit record levels.
- •Through this we are strengthening our customer relationships and building this revenue stream for the future.
- •Replace our razor-to-sell razor blade aftermarket model is working with almost 50% of our quarterly industrial segment sales now driven by higher margin aftermarket sales service.
- •This quarter we acquired our third service business, RPS Associates of New England.
- •Moving to life sciences, food and beverage sales grew over 20% both in new and replacement parts sales.
- •We are winning share through key OEMs and channel partners in this high margin business.
- •Overall sales increased 5% year-over-year to $981 million, driven by volume growth, currency translation benefits, and pricing.
- •On-time delivery rates remain high, and our backlogs support our outlook over multiple quarters.
- •Aftermarket sales were $468 million, up 3%, driven by strong demand in the OE channel from larger customers and market share gains in the independent channel.
What went well
- •Fiscal 2025 was a record year, with sales reaching an all-time high of $3.7 billion and growth across all segments.
- •Operating profit margin expanded to a record 15.7% for the full year, with an incremental margin of nearly 30%, and fourth quarter operating margin reached a record 16.4%.
- •Fourth quarter sales increased 5% year-over-year to $981 million and adjusted EPS was $1.03, up approximately 10% year-over-year.
- •Mobile Solutions aftermarket delivered record results with the independent channel eclipsing $1 billion in sales, and off-road sales grew 5% after eight consecutive quarters of decline as agriculture conditions reached trough.
- •Industrial Solutions sales rose 8% to $310 million with IFS growing double digits, and Life Sciences pre-tax margin improved to 5.3% from negative 1.2% a year ago.
- •The company returned $465 million to shareholders, repurchasing 4% of shares outstanding while increasing the dividend 11%, and cash conversion was strong at 123%.
What went wrong
- •Gross margin was 34.8%, down 140 basis points from 2024, driven almost entirely by tariff-related inflation on LIFO inventory valuation.
- •On-road sales of $26 million declined 20% as a result of cyclical declines in global truck production.
- •The upstream portion of bioprocessing remained muted and troubled, with large capacity-expansion projects showing no turnaround and creating a headwind in the business.
- •Productivity headwinds in the quarter from footprint optimization projects pressured results, with the company still in the heavy-lift phase of that work.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Total sales growth | FY2026 | None | 1% to 5% (~$3.8B at midpoint, ~1% pricing) | new |
| Operating margin | FY2026 | None | 16.1% to 16.7%, ~70 bps YoY improvement | new |
| EPS | FY2026 | None | $3.92 to $4.08 (centered on $4.00) | new |
| Incremental margin | FY2026 | None | approximately 40% | new |
| Cash conversion | FY2026 | None | 85% to 95% | new |
| Mobile Solutions sales | FY2026 | None | flat to up 4% | new |
| Industrial Solutions sales | FY2026 | None | 2% to 6% growth | new |
| Life Sciences sales | FY2026 | None | 1% to 5% growth | new |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total sales | +5% to $981M | Volume growth, currency translation benefits, and pricing |
| Adjusted EPS | +~10% to $1.03 | Higher sales and operating margin expansion |
| Operating margin | +10 bps to record 16.4% | Operating expense leverage offsetting gross margin decline |
| Gross margin | -140 bps to 34.8% | Tariff-related inflation on LIFO inventory valuation accounted for nearly all the change |
| Mobile Solutions sales | +2% to $588M | Aftermarket up 3% on OE channel demand and independent channel share gains |
| Industrial Solutions sales | +8% to $310M | Double-digit IFS growth, dust collection and power generation strength |
| Mobile Solutions pre-tax margin | +80 bps to record 19.1% | Timing of inventory adjustments and leverage on higher sales |
| Industrial Solutions pre-tax margin | +80 bps to record 20.9% | Leverage on higher sales |
| Life Sciences pre-tax margin | +6.5 pts to 5.3% (from -1.2%) | Food and beverage and disk drive strength plus optimized cost structure |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariffs | Significant LIFO inflation impact in Q4 | Company plans to be profit neutral over time on ongoing tariffs | managing |
| Footprint and cost optimization | Heavy lift phase ongoing | Expected to be mostly complete by second half of fiscal 2026 | progressing |
| Power Gen super cycle | Strong | Business is full, no end in sight, longest backlog look in the company | improving |
| Agriculture / off-road end market | Eight consecutive quarters of declines | Bottomed within the quarter with slight low-single-digit uptick | improving |
| Bioprocessing commercialization | Delayed relative to earlier expectations | Meaningful revenue inflection more likely in fiscal 2027 | stable |
| Razor-to-razor-blade aftermarket model | Growing replacement part mix | Almost 50% of industrial segment sales now replacement parts (up from 35%-40% historically) | improving |
Q&A summary
When did agriculture orders bottom and what growth are you seeing early in fiscal 2026?
Management believes ag bottomed within the quarter, seeing low single-digit upticks rather than double-digit growth, and was encouraged that it had stopped falling against very low comps.
How should we think about fiscal 2026 progression for bioprocessing and can it reach break-even EBIT?
Traditional Life Sciences businesses are performing well and carry the guide; upstream bioprocessing remains muted while downstream new products are taking longer, with meaningful revenue more likely in fiscal 2027.
How do you get 40% incremental operating margin in fiscal 2026?
The largest portion comes from gross margin expansion (LIFO bounce-back, tariff offset), with additional expense leverage from structural cost reductions and footprint work lapping later in the year.
How will operating margin trend through the year?
It will step up over the year, with profit more heavily tilted to the back half than the typical 48/52 sales split, by several points.
Can margins move into the low 20s with several years of decent end markets?
Management would not peg a number but said OE rebound creates some mix pressure while structural cost work and footprint consolidation allow more aggressive leverage; expanding operating margin is alive and well.
What is the appetite for M&A and buybacks beyond 2-3% of shares?
Capital priorities are unchanged: organic investment, M&A, dividends, then buyback; appetite for M&A remains with a good pipeline and strong balance sheet, with the 2-3% buyback level seen as normal.