Snapshot
DONALDSON Co INC reported $995M of revenue in Q3 2026, up 5.9% year over year, with diluted EPS of $1.00 and an operating margin of 15.6%.
- Revenue
- $995M
- YoY growth
- +5.9%
- Diluted EPS
- $1.00
- Operating margin
- 15.6%
What management said
- •This morning, we will provide a summary of our third quarter performance and our outlook for fiscal 2026.
- •Before I turn it over to Rich, a quick note on our recently completed acquisition of Facet Filtration.
- •Facet performance will be included in our consolidated fourth quarter earnings results reported in the Aerospace and Defense business unit within Industrial Solutions.
- •I am proud of our team, whose hard work resulted in the company's strongest quarter to date with respect to sales, adjusted operating margin, and adjusted EPS.
- •Lastly, subsequent to quarter end, we closed our acquisition of Facet Filtration, adding high performance fuel and fluid capabilities to our expanding Industrial Solutions product portfolio.
- •Brad will discuss the quarterly financials and full year guidance in more detail.
- •At a high level, sales were a record $995 million, 6% above prior year, driven by currency translation, net pricing benefits, and volume growth.
- •Operating margin was 16.6%, up 30 basis points over prior year, and an increase of 260 basis points from second quarter.
- •Expense leverage on higher sales was partially offset by gross margin pressure from production shifts to support customer-specific requirements in power generation within Industrial Solutions.
- •In Mobile Solutions, sales were $630 million, up 8% inclusive of strong volume growth.
- •Aftermarket sales were $498 million, up 8% with growth in all regions and in both channels.
- •We grew double digits in our independent channel, where our product availability, reliability, and consistency continue to drive share gains.
What went well
- •Third quarter delivered the company's strongest quarter to date for sales, adjusted operating margin, and adjusted EPS, with record sales of $995 million up 6% year-over-year.
- •Operating margin of 16.6% was up 30 basis points over prior year and increased 260 basis points from the second quarter, marking an all-time high.
- •Adjusted EPS of $1.06 grew 7% over the prior year, and operating expense as a rate of sales improved 40 basis points to 17.8%.
- •Mobile Solutions sales grew 8% to $630 million with an all-time high pre-tax margin of 20.2%, including aftermarket up 8% across all regions and both channels and a large competitive fleet win.
- •Life Sciences sales grew 13% to $84 million with food and beverage up over 30%, and the company completed its acquisition of Facet Filtration subsequent to quarter end.
- •The last two footprint optimization plant closures were completed, expected to generate annualized benefits of about $10 million once at run-rate productivity during fiscal 2027.
What went wrong
- •Gross margin was 34.4%, down 10 basis points, as about 100 basis points of headwinds from short-term industrial operating inefficiencies offset pricing, volume, and mix benefits.
- •Production shifts to Mexico for large turbine systems caused about 80 basis points of gross margin pressure, viewed as the low point with full recovery expected midway through fiscal 2027.
- •Industrial Solutions sales declined 1% to $282 million and pre-tax margin fell to 13.4% from 18.1% on power generation and footprint pressures.
- •Aerospace and Defense sales fell 14% to $45 million on weaker new equipment sales pressured by ongoing supply chain constraints and project timing.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Organic total sales growth | FY2026 | 1% to 5% | 3% to 5% (midpoint ~1% higher) | raised |
| Organic operating margin | FY2026 | 16% to 16.4% | 15.8% to 16.2% (10-50 bps expansion) | lowered |
| Mobile Solutions sales | FY2026 | 2% to 6% | 3.5% to 5.5% (slightly above prior) | raised |
| On-Road sales | FY2026 | flat | decrease low double digits (tempered truck production) | lowered |
| Industrial Solutions organic sales | FY2026 | -1% to +3% | flat to up 2% (midpoint consistent) | reaffirmed |
| Aerospace and Defense sales | FY2026 | decline mid single digits | decline mid single digits (program timing) | reaffirmed |
| Life Sciences sales | FY2026 | 5% to 9% | 9% to 11% (raised) | raised |
| Facet interest expense | Q4 FY2026 | None | roughly $9 million (high watermark, to be paid down) | new |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Total sales | +6% to record $995M | Currency translation, net pricing benefits, and volume growth |
| Adjusted EPS | +7% to $1.06 | Higher sales, operating margin expansion, and expense leverage |
| Operating margin | +30 bps to all-time high 16.6% | Expense leverage on higher sales partially offset by industrial gross margin pressure |
| Gross margin | -10 bps to 34.4% | ~100 bps of short-term industrial operating inefficiencies offset pricing, volume, and mix gains |
| Mobile Solutions sales | +8% to $630M | Strong volume growth; aftermarket up 8% in all regions and channels, off-road up 9% |
| Mobile Solutions pre-tax margin | +210 bps to all-time high 20.2% | Volume leverage and favorable aftermarket mix |
| Industrial Solutions sales | -1% to $282M | Volume declines partially offset by net pricing and currency; IFS up 2%, A&D down 14% |
| Industrial Solutions pre-tax margin | -4.7 pts to 13.4% | Power generation production shifts and footprint optimization pressure |
| Aerospace and Defense sales | -14% to $45M | Weaker new equipment sales from supply chain constraints and project timing |
| Life Sciences sales | +13% to $84M | Robust food and beverage new equipment volume (up over 30%) and disk drive strength |
| Life Sciences pre-tax margin | +30 bps to 8.1% | Volume leverage and favorable mix; excluding prior-year earn-out reversal, up more than 8 points |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Power generation super cycle | Booked through fiscal year plus next two years; Mexico ramp inefficiency | EMEA new equipment sales more than doubled; Mexico shift is Q3 low point, full recovery midway through FY27 | improving |
| Footprint optimization | Four plant closures, two closing in Q3 | Last two plants closed; ramping new sites for ~$10M annualized benefit at FY27 run rate | progressing |
| Facet acquisition | Announced, close within a couple quarters | Closed subsequent to quarter end; reported in A&D within Industrial; integration underway | improving |
| Aerospace and Defense | Backlog up over 20%, 2H step-up expected | Near-record backlog; recovery expected to extend into Q1 FY27 due to supply chain and a California plant ramp | stable |
| Mobile aftermarket OE channel | Destocking in Q2, restock expected | Q2 destock, Q3 restock, with pull-through demand expected in Q4 at high levels | improving |
| Tariffs and Middle East inflation | ~$25M annualized estimate, managed via pricing | 232 changes negligible; price-cost well positioned, will use surcharges if Middle East inflation flows through | stable |
Q&A summary
Is it fair that by mid-fiscal 2027 industrial is back to ~18% margin plus the $10 million savings?
Management said taking footprint and power gen into account, that is a fair assessment returning industrial to prior high water marks, with rolled-in savings on top, absent major mix changes.
What are the initial Facet integration steps and synergy potential?
Cost synergies of roughly $4-$5 million are all procurement, with unmodeled revenue synergy upside from cross-selling fuel and air filtration; the post-close business review showed a strong 12-month outlook.
What drives the implied substantial Q4 step-up in Industrial Solutions margin?
It is mostly improved operational performance as two plants closed and transition to new homes, plus higher contemplated volumes and the most meaningful headwinds being behind.
What is the status of A&D orders and backlog given supply chain constraints?
A&D exited Q3 with near-record, steadily increasing backlogs; continued improvement is expected over the next few quarters, becoming a tailwind into fiscal 2027.
What is the price versus volume breakdown of the 3%-5% growth outlook?
Pricing is consistent with the year so far at a little more than 1%; no meaningful incremental Middle East price was factored in, making it more of an organic forecast with surcharges used if needed.
Are you shifting capital priorities toward debt reduction over share repurchases?
Share repurchase was paused to pay down Facet debt but is not suspended; it remains the variable lever and will ebb and flow alongside continued M&A opportunities.