Donaldson Company, Inc. Jefferies Global Industrials Conference 2026

All right. Thank you. Good morning, everybody. Welcome to the Donaldson presentation. As Laurence said, my name's Rich Lewis, I'm President and CEO of Donaldson Company. Looking forward to sharing our story with you today. We'll start with safe harbor statement. I know everybody's seen this a million times. We released our fourth quarter fiscal year 2026 and full year results 2 weeks ago to this day. Everything will be anchored back to the guidance and the results we presented at that time. I'll spend a little bit of time on this slide because I think this is the slide that gives you a little bit more intimate picture of who we are as a company. We are a filtration company, and we are a technology-led filtration company. What does that mean? I'll anchor on the words technology and filtration and take you down a little bit into some more detail.

When we talk about filtration touches really every corner of our economy, every corner of our daily lives. It's pretty much present in all the business verticals in the industrial spaces. It's a really wide playing field. The second part is technology. We play where technology matters. We've invested and built a capability around technology over 100 years. We're looking for applications, products, positions in the market where incremental investment in innovation or in filtration technology provides more benefit to our customers. Those are the 2 areas that we really play in. If you think about our customers, we're on mission-critical applications where technology matters, and we really do 2 things for our customers.

We provide them greater peace of mind, protecting their most critical assets. Think about their people, their products, and their processes, how they make money. We protect those things with our filtration solutions. We enable them to have greater levels of prosperity, because when they use a Donaldson product, they can make more money than they can with the alternatives. That's through overall lower cost of ownership, through higher levels of yield, better uptime, better reliability. It's really a wide market opportunity, and we focus on mission-critical, where technology matters applications. Over the century plus that we've been in business, we've built a set of capabilities foundationally that we leverage across these markets. Think about the technology base that we have is really unique, and we can deploy it into multiple endpoints in the market.

We also have a similar operational capability that we can deploy into all these different market segments. That gives us a reinvestment advantage to invest back into the company, continuing to set the bar for technology across all these market segments. We have done that decade over decade, over product life cycles for many, many years. That allows us to reinvest back into the company. If you think about our growth strategy as a company, it is really one of balance. First, we have a set of applications, product lines, markets that we participate in, and we reinvest into those to continue to maintain a leadership position. These are markets that foundationally are growing, and then you add in pricing and market share gains for our growth algorithm. We use the proceeds from that to broaden our technology base.

Think about higher purity, lower, smaller contaminants, and this allows us to open up new addressable markets that are in higher growth and higher margins. Continuing to grow our core while we expand our base to open up a wider swath of opportunities for Donaldson. This is really who we are, and this is how we have been successful in the company and why I think we are a great long-term investment opportunity. This is a good takeaway slide. 111-year-old company. We operate across three verticals, each with margin expansion opportunities and growth opportunities for many years to come. If you go back to technology, we have over 3,000 active patents, and a big part of our story is the resiliency and the reliability of our recurring revenue. Over two-thirds of our revenue comes from consistent, recurring, high margin replacement parts.

We deploy this across a global network, many different product lines, many different applications, and we operate globally as a company. This allows us the scale to drive efficiency, but also a local capability and a local touch. We built sales, engineering, and operational capabilities to really support our customers where they need us, which is in region and on different types of product applications. 75% of our sales are built in region, which gives us a robustness and reliability against some of the global economic challenges that we face every day. It really makes us a good, trustworthy partner for our customers. Our goal financially is very simple, deliver higher levels of profitability on higher levels of sales. Fiscal year 2026, which just ended at the end of July, we had set records for sales, operating profit margin, and EPS.

If we look to fiscal year 2027 at the midpoint, we are looking at a 7.5% top-line growth. We will set a new record on operating profit margin at 16.9%, so a 90 basis point expansion, and then we will set growth for EPS at 8%. We are doing this through higher levels of replacement parts, pricing excellence, and then really driving expense leverage and operational excellence through every layer of our company. This is a big part of who we are as a company and a big part of our success. We are really excited about fiscal year 2027. We see a lot of opportunities ahead, and I will talk about some of the verticals here in a second. I want to spend a little bit of time on our competitive advantages.

I think this is a tough one for people to digest, so I want to take a little bit of time because it actually is layers of advantages. It's not one individual thing, and it changes over time as we compete in markets. Generally speaking, we engage with our customers when they have a filtration problem that they need to have solved. So we're solving their toughest filtration problems. A lot of times, that happens at the very outset of a market that's being developed for the first time or at an inflection point where something is changing with our customer's technology that requires them to have a better filtration solution that's been available to them in the past. We do that, we solve their problem.

That starts to seed a foundation of trust that we build on, and we build on that by working back and forth with that customer many times over decades to develop a deep application expertise. So if you think about an air filter in the Mobile Solutions market, it's not one product. It's dozens and dozens of applications that require very unique engineering capabilities, and then if you look across all of our end markets, they require very unique operational capabilities. The foundation is consistent, but there's bespoke capabilities required to serve each one of those markets at a leading level of service. We develop those two capabilities over decades of working with our customers, then reinvest to create other advantages through cost and efficiency based on that scale that we have built. Then we protect that with a relentless focus on continuous improvement.

It's really a technology, application, operational capability that all comes together to make our markets very defendable. Three segments. We talked a lot about the markets at our last earnings call. I'm sure there'll be some questions on this. Mobile Solutions business is performing quite well. They've expanded profit margins. They've continued to grow that business in spite of some of the end markets being in sort of downturns over the last 2 or 3 years. We are seeing more green shoots across this space as we look into F27. We're really optimistic about the growth opportunities in this business. The interesting part is they've continued to grow through a market downturn, and the business has done quite well, both in share gain and executing the strategy. Industrial Solutions, aerospace and defense, power gen, very strong secular tailwinds in that space.

We're starting to see opportunities on the non-power gen CapEx side. We're seeing some additional quote activity, so a lot of opportunities in the industrial space, and we're expecting a big step-up on an execution in fiscal year 2027. Life Sciences is anchored by our process filtration and disk drive businesses who have been doing quite excellently while we build out our technology base for high-purity filtration. So three segments all have really excellent growth opportunities and margin expansion opportunities. Capital allocation remains the same. A very balanced, disciplined approach to capital allocation, our first priority. Our second priority is to invest back in organically. We have a great business strategy, a great business model. We want to grow organically in our core businesses while we build out our technology foundation. We will continue to do strategic M&A. I'll talk about Facet here in a second.

That was our largest acquisition in the company history. We just closed that on May 4. We will continue to disperse monies back to our investors through dividends and share repurchases. We have been a proud member of the Dividend Aristocrat fund for 10 years. It takes 20 years of increasing dividends to get into that fund, so we have got 30 years in a row of increasing dividends. It is a big part of our strategy. We are going to continue to be great cash generators and invest back into the business. A little bit on Facet. Facet was our largest acquisition. We closed on May 4. We have talked a lot about this acquisition. It is an industrial business, but it has, I would say, Life Sciences attributes.

Very high margins, very sticky customer relationships, all based on high critical applications in the aerospace and defense industries, and with expanding opportunities into power generation. Really good business, high margins, about 2x our company average, and 70% replaceable consumable parts. Really fits our strategy quite well. Thus far, it is performing exactly to the business case that we had put out there for this one. We are happy with the team. They are very Donaldson-like in their culture, very customer-centric, and they have a great product in the market. I will wrap up here. We are a filtration company. We lead with technology. It is a very wide market. We have a lot of critical applications where we have opportunities. We will continue to grow the company organically. That is a big part of our balanced or growth strategy while we build out our technology base.