Donaldson Company (DCI) Morgan Stanley‘s 12th Annual Laguna Conference 2024 summary

Company overview and strategy

• Operates globally with 14,000–15,000 employees and $3.6B in revenue, reporting record top and bottom lines.

• Three segments: Mobile Solutions (diesel engines), Industrial (diverse filtration), and Life Sciences (newest, highly diversified portfolio).

• Focus on technology-led filtration, with a patent granted nearly every day over four years.

• Ongoing diversification through acquisitions, especially in Life Sciences and industrial technology.

• Strategy aims to reduce cyclicality and broaden the portfolio via organic innovation and M&A.

M&A and portfolio diversification

• Actively pursuing both tuck-in and transformative deals, especially in Life Sciences and technology.

• Recent acquisition: 49% of Medica (Italy), specializing in kidney dialysis filtration and hollow fiber membrane technology.

• Strong balance sheet, low net debt-to-EBITDA (0.5), and increased share buyback guidance to 2–3%.

• Diversification driven by technology acquisition and access to new customer bases, not just end-market targeting.

• Pipeline for acquisitions remains robust and strategic.

Mobile Solutions segment

• Facing broad-based headwinds in agriculture, construction, and mining, with muted long-haul truck demand.

• Aftermarket business is outperforming, with double-digit growth and significant market share gains.

• Market share in aftermarket estimated in the low to mid-teens, with higher share in the US and opportunities in other regions.

• Supply chain normalization has enabled further share gains and improved customer relationships.

• Aftermarket margins are attractive, and guidance reflects continued growth despite first-fit headwinds.