Donaldson’s Key Takeaways: Robert Baird Industrial Conference



Capital deployment

During the Robert Baird Industrial Conference held on November 8 in Chicago, Donaldson (DCI) noted that it intends to add 1%–2% annual growth through acquisitions. In the last two years, the company has made four acquisitions after a four-year dry spell in which it had made only one acquisition.

Donaldson’s acquisitions made in the last two years have had differing strategic objectives such as product expansion, geographic expansion, and technological expansion in its Engine business. The company alluded to the need for target companies to meet one of their objectives to deploy capital for acquiring them.

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Must-win program for Donaldson

During the conference, Donaldson’s (DCI) management discussed its model while describing its win rates. The company mentioned that any air or liquid filter program that offers $5 million in revenues over a ten-year period is a must-win program for the company.

In air filters, Donaldson has a win rate of 75%, 75% of which is in proprietary first fit solutions. In liquid filters, the company’s win rates are in excess of 75%, 40% of which is in the proprietary first fit category.

Winning in a declining market

Caterpillar (CAT), one of Donaldson’s customers, had revenues of $66 billion at its peak in 2012. However, CAT has now guided its 2017 revenues to $39 billion levels.

Among Donaldson’s other customers, John Deere (DE) and AGCO (AGCO) have also suffered annual declines in the 8%–13% range since the peak of the cycle.

On the other hand, Donaldson has lost just 3%, with half of it coming from currency translations. The company attributed this to its strongest winning market share in a declining market.


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