You are given a text that consists of multiple sentences. Your task is to perform abstractive summarization on this text. Use your understanding of the content to express the main ideas and crucial details in a shorter, coherent, and natural sounding text. 
Text: During today's call we will reference non-GAAP metrics.
I'm very pleased with our third quarter results, which exceeded our expectation and was the highest sales quarter in our company's history.
Third quarter highlights includes, sales increased 22% year-over-year and 13% sequentially from second quarter, the largest second to third quarter increase in over 10 years.
Gross margin improved 50 basis points year-over-year and earnings per share grew 32%.
This could not have been accomplished without our dedicated Donaldson employees who come to work every day whether at home or in the office to ensure we are meeting our goals in serving our customers.
Now let me provide some insights on our third quarter sales.
Total company sales increased 22% in the third quarter from prior-year.
In local currency sales rose 17%.
We are pleased with this level of growth and believe our momentum will continue.
Engine sales recorded strong year-over-year growth of 26%, 22% in local currency.
Our 51% Off-Road business growth was widespread with all regions experiencing an increase in sales.
In particular, local currency sales in Europe and Asia-Pacific were up 78% and 42% respectively.
China sales increased almost 50%.
Several factors give us confidence in the outlook for Off-Road.
Global demand for construction and agriculture equipment remains high and mining is also seeing increased demand.
PowerCore continues to gain traction in China and we are on track to deliver 2 times as many PowerCore air cleaners in 2021 compared to 2020.
And our backlogs continue to build as we exit third quarter.
On-Road sales experienced a sharp rebound from the 1% year-over-year decline in second quarter, increasing 58% from 2020.
Order and build rates for Class 8 trucks in the US have risen significantly over the past few months and are projected by external data sources to remain at a high level over the next several quarters.
In China, our On-Road sales more than doubled driven by increased heavy-duty truck production and market share gains.
With a favorable economic backdrop, our strong market position in North America and the significant opportunity to grow in China, we are optimistic on the outlook for our On-Road business.
Aftermarket sales increased 23% in third quarter including a 4% currency benefit.
Utilization rates for construction and agriculture equipment and heavy-duty trucks remain at a high level, which is driving increased demand for replacement products.
In local currency sales Latin America increased by over 40% and Europe and Asia-Pacific were up 17% and 18% respectively.
Aerospace and Defense continues to be pressured, primarily due to a weak commercial aerospace market as a result of the COVID-19 pandemic.
A bright spot in Aerospace and Defense is rotary aircraft where sales increased due to previous program wins now coming online.
Looking at the Industrial segment.
Sales in third quarter increased 12% or 7% excluding the favorable impact of currency translation and growth was widespread across geographies.
Industrial Filtration Solutions or IFS saw a significant sequential uptick in quoting activity for dust collection systems in third quarter.
IFS benefited from increased sales of dust collection products on both a first-fit and replacement parts basis.
This is a nice turnaround from the declines experienced in second quarter, which we believe was the trough.
We have seen this business move from the -- if it breaks, you fix it cycle through the if it breaks new replace it cycle and now move to the investment and expansion cycle where we see increased purchases for new projects.
We also saw increased sales in first-fit and replacement products across the rest of the IFS businesses, including greater than 50% growth at BofA and mid 20s percentage growth in Process Filtration sales.
These growth rates indicate to us that not only are we winning share in targeted growth areas, we are also retaining the replacement business, which should only increase as our installed base becomes larger.
Sales of Gas Turbine Systems or GTS declined about 13% year-over-year due to a decline in demand for gas turbines used in the oil and gas market, a slowing of retrofit activity and the timing of projects.
Sales in Special Applications saw double-digit growth in integrated venting solutions and membranes which was partially offset by a high single-digit decline in our disk drive business.
These broad based positive company results give us increased confidence in our ability to have a strong finish to our fiscal 2021.
Finally, we believe supporting the communities in which our people live and work and where we do business is the right thing to do.
Therefore, in third quarter Donaldson contributed $1 million to support our local community and help rebuild areas in Minneapolis and St. Paul that were damaged from the unrest over the last year.
Like Tod, I'm also very pleased with our results in the third quarter, which were stronger than our expectations and as previously mentioned, the highest quarterly sales in the company's history.
Total sales increased 22% year-over-year and operating margin increased 90 basis points to 14.3%.
As you have heard me say many times, we are committed to generating higher levels of profitability on higher sales and our third quarter results demonstrate our commitment to this, even in the face of pressures from higher raw material costs and supply chain disruptions.
As we entered the third quarter, we were building momentum and that continued through the end of the quarter, given our incoming order rates and backlog levels, we expect this momentum should maintain through the end of fiscal '21.
Now let me get into our third quarter results in a bit more detail.
Our Engine segment profitability increased 250 basis points year-over-year as we leverage the significant uptick in sales.
The Industrial segment in contrast, recorded a 50 basis decline in profitability.
This decline is a result of the business unit mix with an industrial and weaker gross margins in GTS and disk drive products.
Third quarter company gross margin improved by 50 basis points to 33.7% which accounted for a bit over half of the 90 basis point increase in operating margin.
Raw material and freight cost inflation were headwinds and the reversal from the tail and we experienced in the first half of the fiscal year.
Sales mix is also unfavorable to gross margin primarily as a result of strong and new sales.
However, we were able to offset the margin pressures for sales leverage and pricing.
We continue to expect second half gross margin will be up year-over-year, however, the headwinds from higher raw material and freight costs are increasing from what we experienced in the third quarter.
Given the sharp increases in our raw material and freight costs, we are focused on pricing actions to mitigate the impact on our margin.
We remain committed to managing our price cost relationship, particularly in an environment of strong demand for our products.
We are also committed to controlling operating expenses.
In the third quarter operating expenses as a percentage of sales declined 40 basis points year-over-year.
This was driven by leverage on increased sales, partially offset by increased incentive compensation expense.
Investing on our strategic priorities remains a focus for us.
Our Advance and Accelerate portfolio received the largest amount of our investment and over time as expected to generate sales growth and higher margins and company average.
We are also excited about the growth opportunities with our first-fit engine businesses.
These businesses tend to be more cyclical and command leadership positions in their markets.
In the case of On-road, Off-Road and Defense, there are multi-year programs that provide a solid base of business to help grow our aftermarket sales.
We see opportunities for additional program wins and further penetrate into markets where we have a smaller share.
One example is China but the market is large.
There is an increasing willingness of OEs to adopt the filtration technology we provide and we are winning new programs.
We have taken a disciplined approach to managing our business and opportunities by focusing on selective cost optimization projects and leveraging our global presence while continuing to invest in growth areas.
As the world recovers from the pandemic, we are in a great position to participate in the post-pandemic upswing some of which is represented in our third quarter results.
We made capital investments of approximately $10 million in the third quarter, a decline of over 60% from the third quarter of last year as we bring to completion many of our significant capital projects from the prior two years.
We paid over $26 million in dividends and repurchased over $32 million of our stock in the third quarter.
Year-to-date we have returned almost $160 million to shareholders.
We have paid a dividend every quarter for the past 65 years and increased our dividend every calendar year for the past 25 years, making Donaldson among a small group of companies that are included in the S&P High Yield Dividend Aristocrats Index, maintaining this track record is important to us.
Our results for the third quarter of fiscal '21 demonstrates that our focus on higher margins and higher sales is working.
The results also underscore the diversification of our business model and our long-term view adds value to the company and our shareholders.
We have good sales momentum as we head toward the end of the fiscal year which should carry through the fiscal '22, as such, we are raising our fiscal '21 sales and earnings per share guidance.
With that, let me share our updated expectations for fiscal '21.
In the third quarter, we saw continued sales momentum in our Off-Road, On-Road and Aftermarket Engine businesses and an uptick in our Industrial Filtration Solutions business.
Given the strong results we experienced and our visibility into the remainder of fiscal year, we expect full year sales will be up 9% to 11% year-over-year versus our prior guidance of 5% to 8% increase.
Our annual guidance assumes a full year 3% benefit from currency translation.
In our Engine segment, we project a sales increase of 12% to 14%, which is up from our prior guidance of an 8% to 11% increase.
We project full year Off-Road sales will now increase in the mid to high 20% range, driven by continued strong demand for construction and agricultural equipment and increase ore activity in mining.
Our prior guidance was for low 20% range growth.
In On-Road we expect full year sales will increase in the mid-teens compared to our prior guidance of low-teens.
This increase is due to a stronger improvement in global heavy-duty truck production rates.
Our Engine Aftermarket business has continued to see stronger than expected sales momentum, as global equipment utilization continues to improve.
We now believe sales will increase in the mid-teens compared to our prior guidance of high single-digit increase.
We believe utilization rates for construction and agriculture equipment as well as On-Road trucks will remain at a high level through our fiscal year-end.
We continue to expect our full year sales in Aerospace and Defense to decline in the mid to high 20% range, given the pandemic related stock conditions in commercial aerospace resulted in weak demand.
In the Industrial segment, we expect a full-year sales increase of 3% to 5% versus our previous guidance of down 2% to up 2%.
As Tod mentioned earlier, we are experiencing increased demand for industrial dust collection products particularly replacement parts.
We have increased our outlook for IFS sales and now project sales growth in a mid-single digits compared to our previous expectations of flat sales.
Core and sales activity have increased more quickly than we previously forecasted.
GTS sales are expected to decline in the low single-digits versus our prior expectation of a mid single-digit increase.
In Special Applications, we continue to anticipate a decline in the low single-digits based on our year-to-date results and expected softness in the market for disk drive products.
Expanding our gross margin remains a key focus for us.
We continue to work to reduce cost and drive operational efficiencies to leverage higher sales.
In the near term, however, increases in raw material prices and higher freight costs will pressure margins through fiscal '21 and into at least the early part of fiscal '22.
To offset some of the sharp increases in our input costs, we have selectively raised prices and may do so again.
We know the value we bring to our customers and we'll continue to demonstrate this value, the technology led products and best-in-class service.
We are expecting adjusted operating margin in a range of 13.8% to 14.2% compared to 13.2% in 2020.
The midpoint of this range implies a sequential step up in operating margin to about 14.5% for the back half of the year compared to 13.5% in the first half.
Additionally, we expect to maintain a disciplined approach to our operating expenses and deliver further leverage in the remainder of the year, despite an expected full year headwind of $5.25 million from increased incentive compensation, about half of which was incurred in the third quarter.
Other fiscal '21 operating metric expectations are: interest expense of about $13 million, other income of $5 million to $7 million and a tax rate between 24% and 25%.
Capital expenditures are planned to be in the range of $55 million to $60 million.
Taking the midpoint of our sales on capital expenditure guidance for 2021 would put us at just over 2% of sales which as we previously noted as lower in the last few years due to the completion of major projects.
We also plan to repurchase 1.5% to 2% of our shares outstanding.
Our cash conversion has been very good in the first nine months of fiscal '21 and we expect to exceed 100% cash conversion for the full year.
The sales momentum we're currently experiencing is likely to carry through to the first half of fiscal 2022.
We expect first half fiscal 2022 sales to a greater percentage of our full year sales as compared to the first half of fiscal 2021.
Looking at our fiscal '22 gross margin, we expect the headwinds from higher raw material and freight costs to increase from what we've experienced in FY 2021, particularly in the first half of FY 2022.
Our operating expenses for fiscal '22 will have some pluses and minuses relative to fiscal '21.
As we begin to operate on a more normal post-pandemic environment, we expect to see an increase in expenses related to in person customer engagement costs including marketing and travel costs as our sales and engineering employees return to on-site visits and attend trade shows.
Investment in our Donaldson employees, including training and development and increased headcount to meet demand.
However, we should see an offset in reduced incentive compensation expense on a year-over-year basis as we reset our annual compensation plans.
Our objectives for the remainder of this fiscal year and '22 are unchanged.
We will continue to invest for growth and market share gains in our Advance and Accelerate portfolio, including inorganic growth in life sciences, execute productivity initiatives and pricing actions that will strengthen gross margin, maintain control operating expenses and protect our strong financial position through disciplined capital deployment and working capital management.
Our second half started off strong and we have solid momentum to carry us through the end of fiscal '21 and enter fiscal '22.
Our third quarter results demonstrate the momentum we have in our business and the benefits of having a diversified portfolio.
We continue to maintain a disciplined long-term focus on our strategy.
To remind you, our strategic priorities remain unchanged and we are focused on expanding our technologies and solutions, extending our market access and executing thoughtful acquisitions, particularly in life sciences.
Some recent examples of new products include our new Ultrapac Smart Dryer for Compressed Air Process Filtration, an upgrade to our iCue Connected Filtration Service, which now comes standard on many of our Industrial Dust Collectors and over time will provide recurring revenue.
The expansion of our Filter Minder real time monitoring service to Engine liquid filtration in addition to air filtration and our Rugged Pleat Baghouse industrial dust collector that we introduced in first quarter, which is already on pace to generate 2 times our initial first year forecasted sales.
Our strategy also involves seeking out inorganic growth opportunities and we are well positioned to expand our addressable market in life sciences.
We have a solid roadmap and a pipeline of potential opportunities in life sciences.
While I can't comment on when or if the deal might happen, I can say I'm very encouraged by the work the life sciences business development team is doing.
They have increased our understanding of the life sciences market and improved our strategic focus in that area.
We have the right people in place to execute our strategy.
We continue to maintain a strong balance sheet and disciplined on our capital deployment, which positions us well to make acquisitions that will expand our markets, increase our margins over time and allow us to further leverage our Filtration technology expertise.
We have the ability to continue to invest in organic growth to extend our market reach, increase market share and maintain our market leadership positions.
This is a very exciting time for Donaldson and I look forward to sharing our successes with you.

user
sees fy sales up 9 to 11 percent.
expects to repurchase 1.5% to 2.0% of its outstanding shares during fiscal 2021.
challenges in supply chain are expected to continue through q4 2021.
expects fiscal 2021 capital expenditures between $55 million and $60 million.

assistant