DONALDSON Co INC (DCI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Founded in 1915, Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets. Donaldson’s diverse and skilled employees at more than 150 locations on six continents, 77 of which are manufacturing and/or distribution centers, partner with customers - from small business owners to the world’s largest original equipment manufacturer (OEM) brands - to solve complex filtration challenges. Customers choose Donaldson’s filtration solutions due to their stringent technical and performance requirements, the need for reliability and the value proposition of Donaldson’s solutions and/or services.

The Company’s operating segments are Mobile Solutions, Industrial Solutions and Life Sciences. The Mobile Solutions segment is organized based on a combination of customers and products and consists of the Off-Road, On-Road and Aftermarket business units. Within these business units, products consist of replacement filters for both air and liquid filtration applications and filtration housings for new equipment production and systems related to exhaust and emissions. Applications include air filtration systems, fuel, lube and hydraulic systems, emissions systems and sensors, indicators and monitoring systems. Mobile Solutions sells to OEMs in the construction, mining, agriculture and transportation end markets and to independent distributors and OEM dealer networks.

The Industrial Solutions segment is organized based on product type and consists of Industrial Air Filtration, Industrial Gases, Industrial Hydraulics, Power Generation and Aerospace and Defense products. These products are further organized by the Industrial Filtration Solutions and Aerospace and Defense business units. Within our industrial portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gases and Industrial Hydraulics products consist of dust, fume and mist collectors, compressed air and industrial gases purification systems, hydraulic and lubricated rotating filtration applications as well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.

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The Life Sciences segment is organized by end market and consists of the Food and Beverage, Disk Drive, Vehicle Electrification and Medical Device, Microelectronics and Bioprocessing Equipment and Consumables markets. Within these markets, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.

The Company’s results of operations are affected by conditions in the global economic and geopolitical environment. Under most economic conditions, the Company’s diversification between its diesel engine end markets, its global end markets, its diversification through technology and its OEM and replacement parts customers has helped to limit the impact of weakness in any one product line, market or geography on the consolidated operating results of the Company.

Operating Environment

Tariffs

The U.S. imposed tariffs on a wide range of imports, with the potential for further tariff actions, which resulted in retaliatory tariffs. These trade measures, along with updates to export controls and sanctions regimes, pose ongoing risks to global supply chains, potentially increasing the cost of goods, straining procurement cycles and impacting customer demand. On February 20, 2026, the United States Supreme Court issued a decision concluding that the IEEPA does not provide authority for the President to impose tariffs. Certain tariffs that affected us were imposed under this statute pursuant to presidential executive order. On March 4, 2026, the Court of International Trade (CIT) ordered U.S. Customs and Border Protection (CBP) to begin the refund process for all importers who were subject to IEEPA duties. The situation continues to evolve, and further legislative, regulatory, or judicial developments may affect the ultimate outcome and the availability or timing of any refunds. As of April 30, 2026, we did not record an asset related to the potential refund. We will continue to evaluate new developments and would record a potential refund under a loss recovery model pursuant to ASC 410-30 if the requirements are met. We are closely monitoring the evolving trade landscape, as well as our ability to mitigate the impact of tariffs and our analysis of the potential impact. We will continue to utilize our global manufacturing footprint and supply chain to mitigate the cost impact of tariffs.

Any additional tariffs in the U.S. or retaliatory tariffs imposed by other governments could exacerbate the impact. Any new, substantial tariff increases on imports to the U.S. from Mexico, China and the European Union (EU) should they be implemented and sustained for an extended period of time, could have a significant adverse effect on us and our supply chain.

For additional information regarding the impact and potential impact of trade policy and tariffs on the Company, refer to the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2025 which outlines the risks and uncertainties the Company believes are the most material to its business.

Conflict in Iran

On February 28, 2026, the United States and Israel began a military operation targeting Iranian nuclear sites, military infrastructure, and top leadership. Iran has retaliated with attacks on infrastructure assets and United States and Israeli military bases in the Middle East, as well as a blockade of the Strait of Hormuz, a key shipping route for oil and liquified natural gas, among other commodities. As a result of the conflict, prices for these and other impacted commodities have increased sharply, causing volatility in the global economic markets. If the conflict or geopolitical tensions continue or worsen, it could have a significant adverse effect on our business, financial condition, or results of operations. We are monitoring the regional and global ramifications of the events unfolding.

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Consolidated Results of Operations

Three months ended April 30, 2026 compared with three months ended April 30, 2025

Operating Results

Operating results were as follows (in millions, except per share amounts):

Geographic Net Sales by Origination

Net sales, disaggregated by location where the customer’s order was received, were as follows (in millions):

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Net Sales

(1) The impact of foreign currency translation was calculated by translating the third quarter of fiscal 2026 foreign currency net sales into U.S. dollars using the average foreign currency exchange rates for the third quarter of the prior fiscal year. The impact of currency translation does not change the underlying drivers of revenue shown in this chart.

Net sales by segment (in millions):

Net sales for the three months ended April 30, 2026 increased $55.0 million, or 5.8%, from the three months ended April 30, 2025, reflecting higher sales in the Mobile Solutions segment of $47.3 million, or 8.1% growth, and the Life Sciences segment of $9.3 million, or 12.7% growth, partially offset by lower sales in the Industrial Solutions segment of $1.6 million, or a 0.6% decline. Foreign currency translation increased net sales by $25.4 million compared to the three months ended April 30, 2025, reflecting an increase in the Mobile Solutions segment of $16.2 million, an increase in the Industrial Solutions segment of $5.7 million, and an increase in the Life Sciences segment of $3.5 million. During the three months ended April 30, 2026, the Company’s net sales increase was driven by favorable foreign currency impacts, net pricing benefits and volume growth.

Gross Margin

Gross margin as a percentage of net sales for the three months ended April 30, 2026 was 33.5% compared with 34.2% for the three months ended April 30, 2025. The decrease in gross margin as a percentage of net sales was driven primarily by $9.1 million of costs associated with footprint optimization efforts and operational inefficiencies related to shifting Power Generation equipment production to a new point of manufacturing to support customer-specific requirements in Industrial Solutions, partially offset by net pricing increases and

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company’s results of operations, liquidity and capital resources for the years ended July 31, 2025 and 2024. A discussion of the changes in the Company’s results of operations and liquidity and capital resources for the year ended July 31, 2024 from July 31, 2023 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended July 31, 2024 (the 2024 Annual Report), which was filed with the SEC on September 27, 2024.

The MD&A should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in Item 8 of this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report, particularly Item 1A, “Risk Factors” and in the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.

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Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including a number of financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S. Excluding foreign currency translation from net sales and net earnings (i.e. constant currency) are not measures of financial performance under GAAP; however, the Company believes they are useful in understanding its financial results and provide comparable measures for understanding the operating results of the Company between different fiscal periods. Reconciliations within this MD&A provide more details on the use and derivation of these measures.

Overview

Founded in 1915, Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets. Donaldson’s diverse and skilled employees at more than 150 locations on six continents, 77 of which are manufacturing and/or distribution centers, partner with customers — from small business owners to the world’s largest original equipment manufacturer (OEM) brands — to solve complex filtration challenges. Customers choose Donaldson's filtration solutions due to their stringent technical and performance requirements, the need for reliability and the value proposition of Donaldson's solutions and/or services.

The Company’s operating segments are Mobile Solutions, Industrial Solutions and Life Sciences. The Mobile Solutions segment is organized based on a combination of customers and products and consists of the Off-Road, On-Road and Aftermarket business units. Within these business units, products consist of replacement filters for both air and liquid filtration applications and filtration housings for new equipment production and systems related to exhaust and emissions. Applications include air filtration systems, fuel, lube and hydraulic systems, emissions systems and sensors, indicators and monitoring systems. Mobile Solutions sells to OEMs in the construction, mining, agriculture and transportation end markets and to independent distributors and OEM dealer networks.

The Industrial Solutions segment is organized based on product type and consists of Industrial Air Filtration, Industrial Gases, Industrial Hydraulics, Power Generation and Aerospace and Defense products. These products are further organized by the Industrial Filtration Solutions and Aerospace and Defense business units. Within our industrial portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gases and Industrial Hydraulics products consist of dust, fume and mist collectors, compressed air and industrial gases purification systems, hydraulic and lubricated rotating filtration applications as well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.

The Life Sciences segment is organized by end market and consists of the Food and Beverage, Disk Drive, Vehicle Electrification and Medical Device, Microelectronics and Bioprocessing Equipment and Consumables markets. Within these markets, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.

The Company’s results of operations are affected by conditions in the global economic and geopolitical environment. Under most economic conditions, the Company’s diversification between its diesel engine end markets, its global end markets, its diversification through technology and its OEM and replacement parts customers has helped to limit the impact of weakness in any one product line, market or geography on the consolidated operating results of the Company.

Operating Environment

Tariffs

The U.S. imposed tariffs on a wide range of imports, with the potential for further tariff actions, which resulted in retaliatory tariffs. These trade measures, along with updates to export controls and sanctions regimes, pose ongoing risks to global supply chains, potentially increasing the cost of goods, straining procurement cycles and impacting customer demand. The Company is closely monitoring the evolving trade landscape, as well as its ability to mitigate the impact of tariffs and its analysis of the potential impact. While the ultimate impact of tariffs remains uncertain, the Company continues to expect annual costs related to recently implemented or increased tariffs of approximately $35 million, which represents less than 1% of the Company’s total sales and is expected to be largely offset by pricing increases.

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Any additional tariffs in the U.S. or retaliatory tariffs imposed by other governments could exacerbate the impact. Any new, substantial tariff increases on imports to the U.S. from Mexico, China and the EU, should they be implemented and sustained for an extended period of time, could have a significant adverse effect on the Company and its supply chain.

For additional information regarding the impact and potential impact of trade policy and tariffs on the Company, refer to Part I, Item 1A, “Risk Factors” of this Annual Report, which outlines the risks and uncertainties the Company believes are the most material to its business.

Consolidated Results of Operations

Operating Results

Operating results were as follows (in millions, except per share amounts):

Geographic Net Sales by Origination

Net sales, generally disaggregated by location where the customer’s order was received, were as follows (in millions):

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Net Sales

(1) The impact of foreign currency translation was calculated by translating current fiscal year foreign currency net sales into U.S. dollars using the average foreign currency exchange rates for the prior fiscal year. The impact of currency translation does not change the underlying drivers of revenue shown in this chart.

Net sales by segment (in millions):

Net sales for the year ended July 31, 2025 increased $104.6 million, or 2.9% from fiscal 2024, reflecting higher sales in the Mobile Solutions segment of $40.2 million, or 1.8%, the Industrial Solutions segment of $37.9 million, or 3.6%, and the Life Sciences segment of $26.5 million, or 9.8%. Foreign currency translation increased net sales by $8.3 million, reflecting increases in the Industrial Solutions and Life Sciences segments of $4.7 million and $5.2 million, respectively, and a decrease in the Mobile Solutions segment of $1.6 million. In fiscal 2025, the Company’s net sales increased primarily from higher sales volume as well as pricing actions.

Cost of Sales and Gross Margin

Cost of sales for the year ended July 31, 2025 was $2,404.7 million, compared with $2,311.9 million for the year ended July 31, 2024, an increase of $92.8 million, or 4.0%. Gross margin as a percentage of net sales for the year ended July 31, 2025 was 34.8% compared with 35.5% for the year ended July 31, 2024, a decrease of 0.7%. The decrease in gross margin as a percentage of net sales was driven primarily by higher manufacturing costs associated with footprint optimization initiatives and tariff related inflation

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