UPDATE 2-Donaldson raises FY outlook; shares at year high

Thu Nov 18, 2010 1:32pm EST

* Q1 EPS $0.68 vs est $0.57

* Sales up 25 pct

* Sees FY EPS $2.54-$2.74, sales about $2.2 bln

(Adds analyst comment, conference call, shares)

By Soham Chatterjee

BANGALORE, Nov 18 (Reuters) - Donaldson Co Inc (DCI.N), a maker of filtration and exhaust control products, raised its full-year outlook as it expects higher production by its key customers to drive sales at its engine products unit.

Donaldson's shares rose as much as 8 percent on Thursday to a new year-high of $54.39 on the New York Stock Exchange.

Sales at Minneapolis-based Donaldson's engine products segment, which contributed about 62 percent to the company's first-quarter revenue, are expected to grow by 19-24 percent, up from the prior outlook of 6-11 percent.

"Order build rates in off-road and on-road truck markets have been sequentially improving as well as utilization rates of on-road trucks continue to improve across geographies," Robert W. Baird analyst Richard Eastman told Reuters.

The company now expects full-year sales of about $2.2 billion, up from prior view of $2 billion, on higher production by construction, agricultural and mining equipment makers like Caterpillar Inc (CAT.N), Deere & Co (DE.N) and CNH Global NV CNH.N.

Caterpillar Inc (CAT.N), the No.1 maker of mining equipment, bought Bucyrus International Inc BUCY.O for $7.6 billion on Nov. 15, to tap the rising iron ore and coal demand in emerging markets. [ID:nN15274061]

The company anticipates more demand for agricultural equipment from original equipment makers, based on harvest estimates and increasing demand in China, Donaldson CEO William Cook said on a call with analysts.

The company said sales at its industrial products unit, which makes liquid and air filtration products used from gas turbines to computer hard drives, is expected to rise by 10-15 percent on demand for filtration equipment.

The segment accounted for about 40 percent of the company's first-quarter revenue.

For the August-October quarter, engine products sales rose 33 percent, while industrial products sales rose 15 percent.

It expects to benefit from a weaker dollar and also the expansion of its distribution networks in China and India.

Shares of the company, which have gained nearly a fifth since fourth-quarter results in August, were up about 7 percent at $53.95 Thursday. (Editing by Anne Pallivathuckal, Vyas Mohan)

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