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Parker Reports Fiscal 2017 Third Quarter Results
  • Third quarter sales increased 10% to $3.12 billion, organic sales increased 6%, order rates increased 8%
  • Total segment operating margins strong at 14.8% as reported
  • 16.1% adjusted segment operating margins, a year-over-year increase of 140 bps
  • EPS increased 28% to $1.75, or an increase of 40% to $2.11, on an adjusted basis
  • Year-to-date operating cash flow strong at 9.2%, or 11.8% of sales excluding pension contribution
  • CLARCOR acquisition completed and integration underway to capture meaningful synergies
  • Fiscal 2017 full year earnings guidance increased

CLEVELAND, April 27, 2017 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today reported results for the fiscal 2017 third quarter ended March 31, 2017.  Fiscal 2017 third quarter sales increased 10% to $3.12 billion compared with $2.83 billion in the prior year quarter. Net income increased 28% to $238.8 million compared with $187.1 million in the prior year quarter.  Fiscal 2017 third quarter earnings per share increased 28% to $1.75, compared with $1.37 in the fiscal 2016 third quarter.  Earnings per share were $2.11, when adjusted for business realignment and acquisition related expenses, compared with $1.51 in the prior year quarter, which was adjusted for business realignment expenses.  Cash flow from operations for the first nine months of fiscal 2017 was $789.3 million or 9.2% of sales, compared with $704.6 million or 8.4% of sales in the prior year period.  Excluding discretionary pension contributions, year-to-date cash flow from operations was 11.8% of sales compared with 10.8% of sales in the prior year period.

“Accelerated sales growth combined with the benefits of ongoing execution of our Win Strategy™ initiatives, contributed to another strong quarter for Parker across many measures,” said Chairman and Chief Executive Officer, Tom Williams. “While sales growth included the CLARCOR acquisition, we were particularly pleased that organic sales increased 6%.  We drove meaningful year-over-year adjusted segment operating margin improvement of 140 basis points with total segment operating margins reaching 16.1%.  With the completion of the CLARCOR acquisition, we are well underway with the integration of our two great filtration businesses designed to achieve significant synergies. We were also pleased at Parker’s ability to be a consistent generator of cash with strong year-to-date operating cash flow performance.” 

Segment Results
Diversified Industrial Segment: North American third quarter sales increased 13% to $1.4 billion, and operating income increased 12% to $227.4 million compared with $202.2 million in the same period a year ago.  International third quarter sales increased 11% to $1.1 billion, and operating income increased 45% to $153.0 million compared with $105.2 million in the same period a year ago.

Aerospace Systems Segment: Third quarter sales increased 3% to $577.0 million, and operating income decreased 5% to $80.0 million compared with $84.2 million in the same period a year ago.

Parker reported the following orders for the quarter ending March 31, 2017, compared with the same quarter a year ago:

  • Orders increased 8% for total Parker;
  • Orders increased 9% in the Diversified Industrial North America businesses;
  • Orders increased 13% in the Diversified Industrial International businesses; and
  • Orders were flat in the Aerospace Systems Segment on a rolling 12-month average basis.

Outlook
For the fiscal year ending June 30, 2017, the company has increased guidance for earnings from continuing operations to the range of $6.90 to $7.20 per share, or $7.70 to $8.00 per share on an adjusted basis.  Fiscal year 2017 guidance is adjusted for expected business realignment expenses of approximately $0.25 per share and acquisition related expenses of approximately $0.55 per share.  Full fiscal year 2017 earnings guidance has been updated to include acquisitions.

Williams added, “Our results reflect the hard work of Parker team members in executing the Win Strategy as we continue with actions targeted at achieving top quartile financial performance among our peer companies. In addition, we see broad based improvements in many end markets and regions, which is reflected in our strong order growth in the third quarter.”

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2017 third quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker.  A replay of the conference call will also be available at www.phstock.com for one year after the call.

Parker Hannifin is a Fortune 250 global leader in motion and control technologies. For 100 years the company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.  Parker has increased its annual dividend per share paid to shareholders for 61 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index.  Learn more at www.parker.com or @parkerhannifin.

Note on Orders
Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly % change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems Segment.

Note on Non-GAAP Numbers
This press release contains references to (a) earnings per share and segment operating margins without the effect of business realignment charges and acquisition related expenses; (b) the effect of business realignment charges and acquisition related expenses on forecasted earnings from continuing operations per share; and (c) cash flows from operations without the effect of discretionary pension contributions.  The effects of business realignment charges, acquisition related expenses and discretionary pension contributions are removed to allow investors and the company to meaningfully evaluate changes in earnings per share, segment operating margins and cash flows from operations on a comparable basis from period to period.

Forward-Looking Statements
Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. These statements may be identified from use of forward-looking terminology such as “anticipates,” “believes,” “may,” “should,” “could,” “potential,” “continues,” “plans,” “forecasts,” “estimates,” “projects,” “predicts,” “would,” “intends,” “anticipates,” “expects,” “targets,” “is likely,” “will,” or the negative of these terms and similar expressions, and include all statements regarding future performance, earnings projections, events or developments. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance.

Among other factors which may affect future performance and earnings projections are: economic conditions within the company’s key markets, and the company’s ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance of the Company are, as applicable: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments; disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of CLARCOR; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; competitive market conditions and resulting effects on sales and pricing; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.

             
PARKER HANNIFIN CORPORATION - MARCH 31, 2017            
CONSOLIDATED STATEMENT OF INCOME            
                     
(Unaudited)       Three Months Ended March 31,   Nine Months Ended March 31,  
(Dollars in thousands except per share amounts)     2017       2016       2017       2016    
                         
Net sales       $    3,119,139     $   2,828,665     $    8,533,074     $   8,403,603    
Cost of sales         2,383,790         2,209,401         6,534,280         6,550,929    
Gross profit           735,349         619,264         1,998,794         1,852,674    
Selling, general and administrative expenses       392,036         335,908         1,051,583         1,020,788    
Interest expense         42,057         33,745         109,649         103,802    
Other (income), net         (13,807 )       (23,382 )       (90,468 )       (50,438 )  
Income before income taxes         315,063         272,993         928,030         778,522    
Income taxes         76,216         85,851         237,545         213,217    
Net income           238,847         187,142         690,485         565,305    
Less:  Noncontrolling interests         174         58         378         261    
Net income attributable to common shareholders $    238,673     $   187,084     $    690,107     $   565,044    
                         
Earnings per share attributable to common shareholders:                
  Basic earnings per share      $    1.79     $   1.39     $    5.17     $   4.16    
  Diluted earnings per share     $    1.75     $   1.37     $    5.09     $   4.12    
                         
Average shares outstanding during period - Basic       133,232,378         134,809,610         133,410,622         135,675,823    
Average shares outstanding during period - Diluted       136,102,974       136,552,769         135,527,195       137,311,848    
                         
Cash dividends per common share      $   .66      $ .63     $    1.92     $   1.89    
                         
                         
RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE          
(Unaudited)        Three Months Ended March 31,     Nine Months Ended March 31,   
            2017       2016       2017       2016    
Earnings per diluted share     $    1.75     $   1.37     $    5.09     $   4.12    
Adjustments:                    
  Business realignment charges         0.09         0.14         0.19         0.44    
  Acquisition-related expenses         0.27         -          0.36         -     
Adjusted earnings per diluted share   $    2.11     $   1.51     $    5.64     $   4.56    
                         
                         
                         
BUSINESS SEGMENT INFORMATION                  
(Unaudited)    Three Months Ended March 31,     Nine Months Ended March 31,   
(Dollars in thousands)       2017       2016       2017       2016    
Net sales                      
  Diversified Industrial:                    
  North America     $    1,413,302     $   1,247,904     $    3,701,326     $   3,695,008    
  International         1,128,886         1,019,776         3,149,777         3,050,687    
  Aerospace Systems         576,951         560,985         1,681,971         1,657,908    
Total net sales     $    3,119,139     $   2,828,665     $    8,533,074     $   8,403,603    
                     
Segment operating income                    
  Diversified Industrial:                    
  North America     $    227,419     $   202,180     $    612,043     $   568,509    
  International         152,995         105,161         417,708         329,823    
  Aerospace Systems         79,967         84,238         225,764         240,005    
Total segment operating income       460,381         391,579         1,255,515         1,138,337    
Corporate general and administrative expenses       45,747         42,322         120,707         126,583    
Income before interest and other expense             414,634         349,257         1,134,808         1,011,754    
Interest expense         42,057       33,745         109,649       103,802    
Other expense         57,514       42,519         97,129       129,430    
Income before income taxes     $    315,063     $   272,993     $    928,030     $   778,522    
                         
                         
RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN        
(Unaudited)                      
          Three Months Ended March 31, 2017       Three Months Ended March 31, 2016      
               Operating margin         Operating margin   
Total segment operating income   $    460,381       14.8 %   $   391,579       13.8 %  
  Adjustments:                    
  Business realignment charges         16,318             25,030        
  Acquisition-related expenses         26,226             -        
Adjusted total segment operating income   $    502,925       16.1 %   $   416,609       14.7 %  
                         
                         
                         
CONSOLIDATED BALANCE SHEET                    
(Unaudited)        March 31,     June 30,     March 31,       
(Dollars in thousands)           2017       2016       2016        
Assets                      
Current assets:                    
Cash and cash equivalents     $    819,563     $   1,221,653     $   1,034,971        
Marketable securities and other investments       36,758         882,342         1,069,658        
Trade accounts receivable, net         1,869,303         1,593,920         1,587,785        
Non-trade and notes receivable         235,924         232,183         245,248        
Inventories           1,538,644         1,173,329         1,248,213        
Prepaid expenses         118,962         104,360         124,025        
Total current assets         4,619,154         5,207,787         5,309,900        
Plant and equipment, net         1,945,739         1,568,100         1,598,758        
Deferred income taxes         65,152         605,155         379,541        
Goodwill           5,508,712         2,903,037         2,948,284        
Intangible assets, net         2,338,364         922,571         961,206        
Other assets         848,212         827,492         831,880        
Total assets     $    15,325,333     $   12,034,142     $   12,029,569        
                         
Liabilities and equity                    
Current liabilities:                    
Notes payable     $    776,159     $   361,787     $   576,548        
Accounts payable         1,209,351         1,034,589         999,159        
Accrued liabilities         904,297         841,915         801,716        
Accrued domestic and foreign taxes         158,634         127,597         118,802        
Total current liabilities         3,048,441         2,365,888         2,496,225        
Long-term debt         5,255,156         2,652,457         2,651,906        
Pensions and other postretirement benefits       1,787,311         2,076,143         1,483,641        
Deferred income taxes         159,666         54,395         68,108        
Other liabilities         327,033         306,581         302,706        
Shareholders' equity         4,742,139         4,575,255         5,023,612        
Noncontrolling interests         5,587         3,423         3,371        
Total liabilities and equity     $    15,325,333     $   12,034,142     $   12,029,569        
                         
                         
                         
CONSOLIDATED STATEMENT OF CASH FLOWS                  
(Unaudited)           Nine Months Ended March 31,           
(Dollars in thousands)       2017       2016            
                         
Cash flows from operating activities:                  
Net income       $    690,485     $   565,305            
Depreciation and amortization         236,543         231,777            
Stock incentive plan compensation         60,916         53,735            
(Gain) on sale of business         (42,994 )       (10,668 )          
Loss on disposal of assets         513         76            
(Gain) on sale of marketable securities       (1,032 )       (535 )          
Net change in receivables, inventories, and trade payables     (35,469 )       (19,661 )          
Net change in other assets and liabilities       (169,403 )       (115,201 )          
Other, net           49,734         (262 )          
Net cash provided by operating activities       789,293         704,566            
Cash flows from investing activities:                  
Acquisitions (net of cash of $157,426 in 2017 and $3,814 in 2016)     (4,067,755 )       (67,552 )          
Capital expenditures         (145,236 )       (110,804 )          
Proceeds from sale of plant and equipment       8,452         14,112            
Proceeds from sale of business         85,610         24,325            
Purchases of marketable securities and other investments     (451,561 )       (1,188,594 )          
Maturities and sales of marketable securities and other investments     1,264,721         974,417            
Other, net           (2,590 )       (40,364 )          
Net cash (used in) investing activities       (3,308,359 )       (394,460 )          
Cash flows from financing activities:                  
Net payments for common stock activity       (262,248 )       (464,367 )          
Net proceeds from debt         2,687,761         305,555            
Dividends           (257,161 )       (256,890 )          
Net cash provided by (used in) financing activities     2,168,352         (415,702 )          
Effect of exchange rate changes on cash       (51,376 )       (40,017 )          
Net (decrease) in cash and cash equivalents       (402,090 )       (145,613 )          
Cash and cash equivalents at beginning of period       1,221,653         1,180,584            
Cash and cash equivalents at end of period   $    819,563     $   1,034,971            
                         
                         
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO ADJUSTED CASH FLOW FROM OPERATIONS          
(Unaudited)                      
          Nine Months Ended March 31, 2017       Nine Months Ended March 31, 2016      
               Percent of sales         Percent of sales   
As reported cash flow from operations   $    789,293       9.2 %   $   704,566       8.4 %  
  Discretionary pension contribution         220,000             200,000        
Adjusted cash flow from operations   $    1,009,293       11.8 %   $   904,566       10.8 %  
                         
                         
                         
RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE      
(Unaudited)                      
(Amounts in dollars)                    
          Fiscal Year              
            2017                
Forecasted earnings per diluted share    $6.90 to $7.20               
Adjustments:                    
  Business realignment charges     .25              
  Acquisition-related expenses     .55              
Adjusted forecasted earnings per diluted share      $7.70 to $8.00               

  

Contact:
Media –
Aidan Gormley, Director, Global Communications and Branding
216/896-3258
aidan.gormley@parker.com

Financial Analysts –
Robin J. Davenport, Vice President, Corporate Finance
216/896-2265
rjdavenport@parker.com

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