Fiscal 2023 Outlook
Donaldson expects fiscal 2023 EPS between $2.91 and $3.07, compared with 2022 GAAP and adjusted EPS of $2.66 and $2.68, respectively. Full-year 2023 net sales are projected to increase between 1% and 5% versus the prior year, including benefits from pricing of approximately 6% and a negative impact from currency translation of approximately 4%. The impact of currency translation is expected to be similar for both the Engine and Industrial segments.
Fiscal 2023 Engine sales are projected to increase between 0% and 4%, compared with fiscal 2022, with mid-single digit growth in Aftermarket and Aerospace and Defense offsetting modest declines in On-Road and Off-Road. In Aftermarket, elevated levels of equipment utilization across end-markets and market share gains in less mature geographies are expected to contribute to another year of growth. Aerospace and Defense sales are forecast to be driven by continued strength in the commercial aerospace industry, which remains at pre-COVID-19 levels. Both On-Road and Off-Road sales are expected to decrease low-single digits, due in part to the strategic exiting of lower-margin programs. Off-Road sales are also projected to be negatively impacted by a slowdown in Exhaust and Emissions volumes, which are expected to return to a normalized run rate after peaking in fiscal 2022.
Industrial sales are forecast to increase between 3% and 7% versus the prior year, with high-single digit growth in IFS. Industrial dust collection, both new equipment and replacement parts, and Process Filtration sales are expected to continue the momentum seen in fiscal 2022. GTS sales are projected to be up low-single digits. Special Applications sales are forecasted to be flat versus the prior year as APAC market weakness is expected to continue to weigh on sales, particularly in the first half of fiscal 2023.
Donaldson expects fiscal 2023 operating margin to improve to between 14.5% and 15.1%, compared with reported and adjusted operating margin of 13.4% and 13.5%, respectively, in the prior year. Gross margin expansion, resulting mainly from pricing to offset moderating cost inflation, is projected to drive the operating margin expansion.
The Company expects fiscal 2023 interest expense of approximately $17 million, an increase versus the prior year, due to increased debt levels and interest rates. Other income is forecast between $9 million and $13 million. Donaldson’s fiscal 2023 effective income tax rate is projected to be between 25% and 27%.
The Company expects fiscal 2023 capital expenditures between $115 million and $135 million, and free cash flow conversion is projected to be between 110% and 125%. Donaldson expects to repurchase approximately 2% of its outstanding shares during fiscal 2023.
