“In addition to acquisition, our growth model is to expand in both air and liquid filtration,” said Tod Carpenter, CEO Donaldson Company.
By Ed Gregor, Chairman, International Filtration News Editorial Board
Tod Carpenter is only the sixth CEO of the Donaldson Company in slightly more than 100 years when the company was founded in 1915 by Frank Donaldson, his brother Bob Donaldson and father W.H.L. Donaldson as Donaldson Engineering Company. Tod Carpenter was most recently COO when he was promoted to President and CEO in April 2015, assuming the responsibilities of William (Bill) Cook. Mr. Cook then continued in the Chairman role until he completely retired in April 2016. Donaldson has an enviable record of success over the past century currently led by its two largest filtration business units; Engine and Industrial segments, when combined represent Donaldson’s $2.2 annual revenue in fiscal year 2016. Donaldson reports somewhat greater than 40 percent of revenues came from the United States, whereas, 20 percent comes from the Asia-Pacific region and a healthy, near 30 percent from Europe, with the rest of the world, the remainder. Donaldson’s current fiscal year ends July 31, 2017.
In FY 2017, Mr. Carpenter anticipates revenues to be +/- 2 percent compared to last year’s reported revenue, pretty impressive considering heavy equipment maker Caterpillar, a large customer, reports that their own revenues are down approximately $24 billion between 2012 to 2016 as their mining and construction business climate faced severe headwinds. Despite exports of heavy equipment along with a rising U.S. dollar favoring certain other economies and suppliers outside the United States, Donaldson has managed their business well under the circumstances. Some of the down turn at Caterpillar may be somewhat mitigated this fiscal year depending on President Donald Trump’s anticipated domestic infrastructure plans as stated in his speeches and reported in the media. In the industrial sector, Mr. Carpenter anticipates the Capex spending to pick-up as the calendar year progresses and doesn’t anticipate any meaningful events to slow down the sector. So, the future expectations are favorable for a solid year in fiscal year 2016, before heading into 2017.
Ed Gregor: What do you see in terms of acquisitions for Donaldson in the future?
Tod Carpenter: Acquisitions are part of our growth strategy and we see them adding 1-2 percent to our revenue over time. Donaldson is very disciplined when it comes to acquisitions. We aim for alliances and opportunities that strategically fit with our business and have strong value propositions. An acquisition has to be accretive in year two and have a healthy return on investment by year five.
Ed Gregor: I recall Donaldson’s acquisition of Ultrafilter, Air Maze and Tetratex and number of years ago in addition to a few smaller companies. Can you provide examples of what acquisitions you have made recently?
Tod Carpenter: Certainly, we made four acquisitions in the last two years: a gas turbine company, Northern Technical in Abu Dhabi, UAE (the Middle East is an epicenter for this business); a filter indicator and sensor company in Iowa, Engineered Products; a pleated bag dust collection company in Missouri named IFIL, USA; and an engine aftermarket company, Industrias Partmo in Bucaramanga, Colombia.
In addition to acquisitions, our growth model is to expand in both air and liquid filtration by focusing on 1) strong customer relationships; 2) expanding where we are underrepresented geographically, as we did in South America with distribution first and then adding manufacturing; and 3) technological leadership, as we have done this past year with SYNTEQ XP™ media.
With the transition to Ultra Low Sulphur Diesel (ULSD) and increased sales of biodiesels, today’s fuels can contain more contaminates, are less stable and inhibit water removal. Synteq XP media was designed to respond to these filtration challenges; it’s a game-changer for the industry, achieving a 75 percent win rate.
Ed Gregor: What is Donaldson’s view on sustainability and the products it produces?
Tod Carpenter: There are different ways of defining sustainability so it depends on what you mean by sustainability. From our perspective, since we supply to original equipment manufacturers, we add value to products requested by the customer. In some cases it may be fiberglass products, which are not considered sustainable, yet in other cases the products are polymer-based which are more sustainable. Our sustainable focus is on R&D solutions to help meet our customers’ filtration needs. Donaldson is also in the diesel liquid market where there is a focus on biodiesel and other Ultra Low-Sulphur Diesel fuels that help improve fuel economy.
Ed Gregor: Thoughts on Donaldson’s future?
Tod Carpenter: I am excited about Donaldson’s long-term opportunities due to the world’s ongoing investment in infrastructure, increasing emissions standards and regulations and market trends driving the need for high-performing products and technologies. Filtration is a great industry to be in.
Ed Gregor: Thank you for your time and for our reader’s background, the American Filtration Society (currently renamed American Filtration & Separations Society) was founded September 27, 1987 at Donaldson Company headquarters in Bloomington, Minnesota during a meeting room loaned to the American Program Committee, then a satellite chapter of the Filtration Society in the UK. The Society is grateful, as Donaldson has always been a supporter of the AFS from day one and delighted with Donaldson’s continuing Sponsorship all these years and the many contributions it has made, including a substantial grant, the year the AFS sponsored the 2004 World Filtration Congress in New Orleans.
Tod Carpenter: Thank you, Mr. Gregor. Donaldson is proud to be one of the original 13 founding Corporate Sponsor members of what is now also abbreviated AFS and congratulates the Society as it celebrates its 30th anniversary in 2017.