This morning, Todd and Brad will provide a summary of our Q1 performance and our outlook for fiscal 2026. Donaldson Company's Q1 results were strong, and I'm proud of what our team was able to accomplish: growing sales, operating profit margin, and earnings. Expanded operating profit margin to a record 15.5%, driven by leverage on higher sales and cost optimization initiatives. For example, we continue to gain share in the independent channel, where sales grew nearly double digits.
While cyclical headwinds continue, our largest first-fit business, Off-Road, grew for the second consecutive quarter with supportive end market conditions in construction more than offsetting muted conditions in agriculture. In Industrial Solutions, our power generation business is robust, supported by the current electricity demand supercycle, including data center and AI infrastructure buildouts. Dust collection replacement part sales growth was solid, another example of our razor-and-blade strategy at work as we continue to build out our service and aftermarket capabilities. In Life Sciences, we're excited by the market share we are gaining in food and beverage, where sales grew over 20%.
Our commitment to serving our customers through any market conditions while maintaining high on-time delivery rates is driving demand, and our backlogs are reflective of the confidence our customers have in Donaldson. We are also building for our future through our disciplined investments in R&D and capital expenditures. This quarter, these included continued focused investments in growth areas such as solvent recovery, new disk drive technologies, and air and alternative fuels filtration. This marks the fifth consecutive quarter of growth, and we recently won another hydraulics program with a top agriculture equipment manufacturer, another sign that customer trust in Donaldson is building in this massive market.
| Metric | Period | Current guidance |
|---|---|---|
| Total sales growth | FY2026 | 1% to 5% (reiterated, ~1% pricing) (reaffirmed) |
| Operating margin | FY2026 | 16.2% to 16.8% (raised 10 bps), record 16.5% midpoint (raised) |
| EPS | FY2026 | $3.95 to $4.11 (raised $0.03), $4.03 midpoint (raised) |
| Incremental margin | FY2026 | more than 40% (raised) |
| On-Road sales | FY2026 | flat versus 2025 (projects pushed beyond fiscal year) (lowered) |
| Cash conversion | FY2026 | 85% to 95% (reaffirmed) |
| Mobile Solutions sales | FY2026 | flat to up 4% (reaffirmed) |
| Metric | YoY | Note |
|---|---|---|
| Total sales | +4% to $935M | Growth across mobile aftermarket, power generation, food and beverage, and disk drive |
| Adjusted EPS | +13% to $0.94 | Higher sales, operating margin expansion, and cost optimization |
| Operating margin | +60 bps to Q1 record 15.5% | Expense favorability and leverage on higher sales |
| Gross margin | -20 bps to 35.4% | Increased operating costs only partially offset by pricing, though better than internal expectations |
| Mobile Solutions sales | +5% to $598M | Aftermarket up 7% on OE and independent channel strength; off-road up 6% |
| On-Road sales | -27% to $23M | Decreased global truck production |
| Industrial Solutions sales | flat at $258M | IFS up 2% offset by A&D down 7% on softer defense |
| Industrial Solutions pre-tax margin | -3.4 pts to 12.5% | Unfavorable sales mix and loss of leverage on operating costs |
| Life Sciences sales | +13% to $79M | Double-digit growth in food and beverage and disk drive plus upstream project timing |
| Life Sciences pre-tax margin | +16.8 pts to 9.2% (from -7.6%) | Higher margin food and beverage and disk drive sales plus prior optimization benefits |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariffs | Targeting profit neutral; ~$35M annualized estimate | Annualized estimate cut to ~$25M; successfully offset through pricing and supply chain | Improving |
| Footprint optimization | Heavy lift phase, mostly complete by 2H FY26 | Structural benefits to date very limited; building benefit toward back half | Progressing |
| Power generation super cycle | Order books full through fiscal year | Order books full through rest of fiscal year, supported by data center and AI buildouts | Improving |
| Disk drive / HAMR technology | Investing in new capabilities | Grew over 20% on share gains and AI/cloud demand; a couple percent of total sales | Improving |
| Connected dust collectors | Targeting over 30% increase in connected machines | On target to connect 2,000-3,000 dust collectors this year | Stable |
| Regional demand | China cautious; mixed by region | Europe strengthening, US more careful but solid, China up but not yet a recovery call | Improving |