Filtration equipment manufacturer Donaldson (NYSE: DCI) announced better-than-expected revenue in Q2 CY2026, with sales up 8% year on year to $1.06 billion. Its GAAP profit of $1.10 per share was 1.8% below analysts’ consensus estimates.

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Company Overview

Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE: DCI) manufacturers and sells filtration equipment for various industries.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Donaldson’s 6.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Donaldson’s recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 3% year-on-year growth. Because this number aligns with its reported revenue growth, we can see that foreign exchange has not had a meaningful impact on topline.

This quarter, Donaldson reported year-on-year revenue growth of 8%, and its $1.06 billion of revenue exceeded Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

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Operating Margin

Donaldson has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.3%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Donaldson’s operating margin rose by 2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Donaldson generated an operating margin profit margin of 16.7%, up 1.2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth — for example, a company could inflate its sales through excessive spending on advertising and promotions.

Donaldson’s EPS grew at 11.5% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Donaldson’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Donaldson’s operating margin expanded by 2 percentage points over the last five years. On top of that, its share count shrank by 7.7%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Donaldson, its two-year annual EPS growth of 6.8% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q2, Donaldson reported EPS of $1.10, up from $0.97 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Donaldson’s full-year EPS to grow 14.1% from $3.85 to $4.40.

Key Takeaways from Donaldson’s Q2 Results

We enjoyed seeing Donaldson beat analysts’ EBITDA expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its EPS fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 2.4% to $95.50 immediately following the results.

Should you buy the stock or not? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).