Intellisight 6 th Annual Conference Hosted by the CFA Society of MN - PowerPoint PPT Presentation

Intellisight 6 th Annual Conference Hosted by the CFA Society of MN Tod Carpenter President and CEO

Safe Harbor Statement This presentation includes forward-looking statements which reflect the Company’s current views with respect to future events and financial performance, but involve uncertainties that could significantly impact results. 2

Overview of Donaldson

Donaldson Company We are a filtration company • Technology leader in our markets • Diversified portfolio of global businesses 4

Value Proposition To Our Customers Technology Advantages • Higher efficiency • Small system size • Longer filter life • Reduced operating and maintenance costs Better Aftermarket Retention 5

Value Proposition To Our Shareholders • Diversified portfolio of technology and products • Global sales, production and distribution footprint • Committed to growth & financial performance • Disciplined capital deployment 6

Business Composition Engine Segment $1.4 billion, or 63% of FY16 sales 7% Aftermarket 9% Off-Road 16% On-Road 68% A&D Industrial Segment $0.9 billion, or 37% of FY16 sales 18% Ind. Filtration Spec. Apps 62% 20% Gas Turbine 7

Performance and Outlook

Year-to-Date * Sales Performance Year-to-date* sales of $1.7 billion; +5.2% over last year Engine Segment Industrial Segment Total sales: +9.4% YTD* Total sales: (1.9)% YTD* 15% 12.4% 12.3% 12.1% 10% 5% 2.1% 0.6% 0% -5% -10% -15% -20% -18.6% -18.9% -25% 9 *Nine Months ended April 30, 2017

Full-Year 2017 Expectations * Full-year sales expected to increase 6% from PY: • Engine sales up 10% - 11% • Industrial sales down 3% to 2% Adjusted EPS: $1.67 - $1.71; ~11% above PY ** • Operating margin of 14.0% - 14.4%; up from 13.2% LY ** • Share repurchase between 2% and 3% *Guidance as of June 1, 2017 **Adjusted metrics, which are non-GAAP, exclude certain one-time charges 10

Operating Environment At the beginning of FY17: As of Q3’17 earnings: Production expected to decline Off-road production increasing Strength in replacement parts Stronger-than-expected aftermarket Limited global capital spending Limited global capital spending Geopolitical uncertainty Geopolitical uncertainty Increased guidance driven entirely by Engine; Industrial markets still uncertain 11

Strategic Growth Plans

Strategic Growth Plans Geography Expand core products & technologies Expand geographies Expand DONALDSON Core CORE Execute acquisitions Acquisitions 13

Sales Growth Model Reinvest Use Innovative Technology Create Sell Holes Replacements Growth 14

Innovative Product to Improve Retention Aftermarket retention rate of innovative products is higher than legacy products over time 100% 80% 60% Inno In nova vativ tive e Prod Pr oduc ucts ts 40% Legacy 20% Pr Prod oduc ucts ts 0% Yr 0 Yr 2 Yr 5 Yr 8 Yr 10 Yr 15 15

Innovative Air Filtration PowerCore DownFlo Evolution 16

Innovative Liquid Filtration • Designed for new diesel fuels, higher fuel injector pressure • Higher efficiency and extended filter life 17

Capital Deployment

Capital Deployment Priorities • Invest in our company • Pay a dividend • Repurchase our shares

Reinvesting in the Business • Organic Growth Investments • Expecting to increase R&D spend over time to 3% - 4% of sales • Development of new and innovative products • Lab upgrades and IT investments • Production capacity and distribution expansion • Acquisitions • Completed five bolt-on acquisitions in <3 years 20

Consistent Dividend Growth • Raised quarterly dividend 2.9% to $0.18/share* Per Share • Paid quarterly dividend for 60+ years • Increased annually for 20+ years $0.80 $0.70 $0.70 $0.60 16% CAGR $0.50 $0.40 $0.30 $0.20 $0.10 $0.02 $0.00 1990 2017 *Announced on 7/28/17; payable 8/31 to shareholders of record on 8/15 21

Consistent Share Repurchase Shares • Goal is to at least offset annual dilution of ~1% Outstanding in Millions 250 -2% CAGR 200 150 100 50 0 1990 2017 22

Value Proposition To Our Shareholders • Diversified portfolio of technology and products • Global sales, production and distribution footprint • Committed to growth & financial performance • Disciplined capital deployment 23

A Measure of Performance Annualized Total Return to Shareholders * 32% 16% 14% 11% 8% 8% 1 Year 5 Years 10 Years DCI S&P 500 *As of 8/8/2017. 24

Thank You