Filtration equipment manufacturer Donaldson (NYSE: DCI) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 4.8% year on year to $980.7 million. Its non-GAAP profit of $1.03 per share was 1.3% above analysts’ consensus estimates.

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“Our fourth quarter earnings results, inclusive of robust sales and profitability, represent a strong finish to a record fiscal 2025,” said Tod Carpenter, chairman, president and chief executive officer.

Company Overview

Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE: DCI) manufacturers and sells filtration equipment for various industries.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Donaldson grew its sales at a mediocre 7.4% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Donaldson’s recent performance shows its demand has slowed as its annualized revenue growth of 3.7% over the last two years was below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 3.6% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Donaldson has properly hedged its foreign currency exposure.

This quarter, Donaldson reported modest year-on-year revenue growth of 4.8% but beat Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its products and services will face some demand challenges.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Donaldson’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 13.9% over the last five years. This profitability was top-notch for an industrials business, showing it’s an well-run company with an efficient cost structure. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Donaldson’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Donaldson generated an operating margin profit margin of 15.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Donaldson’s EPS grew at a remarkable 12.9% compounded annual growth rate over the last five years, higher than its 7.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Donaldson’s earnings to better understand the drivers of its performance. A five-year view shows that Donaldson has repurchased its stock, shrinking its share count by 7.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Donaldson, its two-year annual EPS growth of 10% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q2, Donaldson reported adjusted EPS of $1.03, up from $0.94 in the same quarter last year. This print beat analysts’ estimates by 1.3%. Over the next 12 months, Wall Street expects Donaldson’s full-year EPS of $3.68 to grow 7.6%.

Key Takeaways from Donaldson’s Q2 Results

It was great to see Donaldson’s full-year EPS guidance top analysts’ expectations. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.7% to $78.50 immediately after reporting.

Donaldson had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.