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Parker Reports Fiscal 2018 First Quarter Results
  • Sales increased 23% to a first quarter record of $3.36 billion, organic sales increased 7%
  • Total Parker order rates increased 11%
  • Operational improvements deliver total segment operating margins of 15.6%, or 16.0% adjusted
  • EPS increased 36% to a Q1 record of $2.10, or an increase of 40% to $2.24, on an adjusted basis
  • Company increases fiscal 2018 full year guidance

CLEVELAND, Nov. 02, 2017 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today reported results for the fiscal 2018 first quarter ended September 30, 2017.  Fiscal 2018 first quarter sales increased 23% to $3.36 billion compared with $2.74 billion in the prior year quarter.  Net income increased 36% to $285.5 million compared with $210.2 million in the prior year quarter.  Fiscal 2018 first quarter earnings per share increased 36% to $2.10, compared with $1.55 in the fiscal 2017 first quarter.  During the quarter, the company recognized a lower effective tax rate compared with the first quarter of fiscal 2017, due primarily to tax benefits related to stock option activity, resulting in a favorable impact to earnings of $0.12 per share.  Earnings per share increased 40% to $2.24 when adjusted for business realignment expenses, CLARCOR costs to achieve and a loss related to the sale of an investment, compared with earnings per share of $1.61 in the prior year quarter, which was adjusted for business realignment expenses.  Fiscal year to date, net cash provided by operating activities was $239.0 million or 7.1% of sales, compared with $113.9 million or 4.2% of sales in the prior year period.  Operating cash to sales was 12.2% in the prior year period excluding discretionary pension contributions.  

“This was a strong quarter reflecting growth greater than industrial production and margin expansion demonstrating the benefits of the new Win StrategyTM,” said Chairman and Chief Executive Officer, Tom Williams.  “This solid start to the year reinforces our projection of record sales and earnings for the full year.”

First Quarter Fiscal 2018 Segment Results
Diversified Industrial Segment: North American first quarter sales increased 37% to $1.6 billion, and operating income increased 28% to $256.0 million compared with $200.6 million in the same period a year ago.  International first quarter sales increased 22% to $1.2 billion, and operating income increased 40% to $191.8 million compared with $137.2 million in the same period a year ago.

Aerospace Systems Segment: First quarter sales were $531.2 million compared with $561.2 million in the prior year period, and operating income increased 6% to $77.4 million compared with $73.3 million in the same period a year ago.

Parker reported the following orders for the quarter ending September 30, 2017, compared with the same quarter a year ago:

  • Orders increased 11% for total Parker
  • Orders increased 10% in the Diversified Industrial North America businesses
  • Orders increased 15% in the Diversified Industrial International businesses
  • Orders increased 4% in the Aerospace Systems Segment on a rolling 12-month average basis

Outlook
For the fiscal year ending June 30, 2018, the company has increased guidance for earnings from continuing operations to the range of $8.45 to $9.05 per share, or $9.10 to $9.70 per share on an adjusted basis.  Fiscal year 2018 guidance is adjusted on a pre-tax basis for the reported loss on investment of approximately $14 million, expected business realignment expenses of approximately $58 million and CLARCOR costs to achieve of approximately $52 million

Williams added, “Through the combination of our sales growth, a lower cost structure, integration of CLARCOR, and the ongoing execution of the new Win StrategyTM initiatives, we expect to generate our best year ever in fiscal 2018.” 

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2018 first 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, CLARCOR costs to achieve and a loss related to the sale of an investment; (b) the effect of business realignment charges, CLARCOR costs to achieve and a loss related to the sale of an investment on forecasted earnings from continuing operations per share; (c) and cash flows from operations without the effect of discretionary pension contributions.  The effects of business realignment charges, CLARCOR costs to achieve, loss related to sale of investment 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.

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

PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2017
CONSOLIDATED STATEMENT OF INCOME
                   
(Unaudited)        Three Months Ended September 30,          
(Dollars in thousands except per share amounts)    2017      2016          
                       
Net sales       $    3,364,651     $ 2,743,131          
Cost of sales         2,532,878       2,106,006          
Selling, general and administrative expenses       401,672       322,969          
Interest expense         53,555       34,148          
Other expense (income), net         2,244       (12,237 )        
Income before income taxes         374,302       292,245          
Income taxes         88,767       82,007          
Net income           285,535       210,238          
Less:  Noncontrolling interests         138       109          
Net income attributable to common shareholders $    285,397     $ 210,129          
                       
Earnings per share attributable to common shareholders:              
Basic earnings per share     $    2.14     $ 1.57          
Diluted earnings per share     $    2.10     $ 1.55          
                       
Average shares outstanding during period - Basic       133,176,964       133,679,378          
Average shares outstanding during period - Diluted       135,794,270       135,825,658          
                       
Cash dividends per common share     $ .66     $ .63          
                       
RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE        
(Unaudited)        Three Months Ended September 30,          
           2017      2016          
Earnings per diluted share     $    2.10     $ 1.55          
Adjustments:                  
Loss on sale of investment         0.07       -          
Business realignment charges         0.04       0.06          
Clarcor costs to achieve         0.03       -          
Adjusted earnings per diluted share   $    2.24     $ 1.61          
                       
                       
BUSINESS SEGMENT INFORMATION                
(Unaudited)   Three Months Ended September 30,          
(Dollars in thousands)      2017
     2016          
Net sales                    
Diversified Industrial:                  
North America     $    1,594,691     $ 1,166,971          
International         1,238,774       1,014,923          
Aerospace Systems         531,186       561,237          
Total       $    3,364,651     $ 2,743,131          
Segment operating income                  
                       
Diversified Industrial:                  
North America     $    256,027     $ 200,611          
International         191,791       137,196          
Aerospace Systems         77,434       73,281          
Total segment operating income       525,252       411,088          
Corporate general and administrative expenses       41,350       31,034          
Income before interest and other expense             483,902       380,054          
Interest expense         53,555       34,148          
Other expense         56,045       53,661          
Income before income taxes     $    374,302     $ 292,245          
                       
                       
RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN      
(Unaudited)                    
                       
          Three Months
Ended
September 30,
2017
      Three Months
Ended
September 30,
2016
   
               Operating margin        Operating margin
Total segment operating income   $    525,252       15.6 %   $ 411,088   15.0 %
Adjustments:                  
Business realignment charges         8,226           10,745    
Clarcor costs to achieve         5,800           -    
Adjusted total segment operating income   $    539,278       16.0 %   $ 421,833   15.4 %
                       
                       
CONSOLIDATED BALANCE SHEET                  
(Unaudited)        September 30,   June 30,     September 30,    
(Dollars in thousands)           2017     2017       2016    
Assets                    
Current assets:                  
Cash and cash equivalents     $    874,766     $ 884,886     $ 1,393,850    
Marketable securities and other investments       99,792       39,318       746,708    
Trade accounts receivable, net         1,922,288       1,930,751       1,498,384    
Non-trade and notes receivable         266,421       254,987       250,520    
Inventories           1,707,001       1,549,494       1,247,972    
Prepaid expenses         134,350       120,282       144,444    
Total current assets         5,004,618       4,779,718       5,281,878    
Plant and equipment, net         1,962,846       1,937,292       1,562,933    
Deferred income taxes         35,194       36,057       495,708    
Goodwill           5,679,239       5,586,878       2,910,765    
Intangible assets, net         2,215,297       2,307,484       901,939    
Other assets         834,085       842,475       817,691    
Total assets     $    15,731,279     $ 15,489,904     $ 11,970,914    
                       
Liabilities and equity                  
Current liabilities:                  
Notes payable     $    1,144,054     $ 1,008,465     $ 595,956    
Accounts payable         1,304,260       1,300,496       1,017,905    
Accrued liabilities         845,524       933,762       766,849    
Accrued domestic and foreign taxes         173,286       153,137       113,528    
Total current liabilities         3,467,124       3,395,860       2,494,238    
Long-term debt         4,788,147       4,861,895       2,653,008    
Pensions and other postretirement benefits       1,391,820       1,406,082       1,806,366    
Deferred income taxes         212,334       221,790       55,079    
Other liabilities         341,195       336,931       311,634    
Shareholders' equity         5,524,940       5,261,649       4,647,281    
Noncontrolling interests         5,719       5,697       3,308    
Total liabilities and equity     $    15,731,279     $ 15,489,904     $ 11,970,914    
                       
                       
CONSOLIDATED STATEMENT OF CASH FLOWS                
(Unaudited)        Three Months Ended September 30,          
(Dollars in thousands)      2017      2016          
                       
Cash flows from operating activities:                
Net income       $    285,535     $ 210,238          
Depreciation and amortization         116,107       75,333          
Stock incentive plan compensation         43,211       35,818          
(Gain) on disposal of assets         (256 )     (681 )        
(Gain) on sale of marketable securities       -       (167 )        
Loss on sale of investment         13,777       -          
Net change in receivables, inventories, and trade payables     (129,061 )     59,690          
Net change in other assets and liabilities       (104,163 )     (361,999 )        
Other, net           13,814       95,700          
Net cash provided by operating activities       238,964       113,932          
Cash flows from investing activities:                
Acquisitions (net of cash of $1,760 in 2016)       -       (29,927 )        
Capital expenditures         (79,336 )     (32,526 )        
Proceeds from sale of plant and equipment       12,448       4,498          
Purchases of marketable securities and other investments     (70,253 )     (189,654 )        
Maturities and sales of marketable securities and other investments     12,499       291,372          
Other, net           6,365       1,450          
Net cash (used in) provided by investing activities     (118,277 )     45,213          
Cash flows from financing activities:                
Net payments for common stock activity       (76,915 )     (131,738 )        
Net proceeds from debt         29,606       231,948          
Dividends           (88,104 )     (84,749 )        
Net cash (used in) provided by financing activities     (135,413 )     15,461          
Effect of exchange rate changes on cash       4,606       (2,409 )        
Net (decrease) increase in cash and cash equivalents       (10,120 )     172,197          
Cash and cash equivalents at beginning of period       884,886       1,221,653          
Cash and cash equivalents at end of period   $    874,766     $ 1,393,850          
                       
                       
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO ADJUSTED CASH FLOW FROM OPERATIONS        
(Unaudited)                    
          Three Months
Ended
September 30,
2017
      Three Months
Ended
September 30,
2016
   
               Percent of sales        Percent of sales
As reported cash flow from operations   $    238,964       7.1 %   $ 113,932   4.2 %
Discretionary pension contribution         -           220,000    
Adjusted cash flow from operations   $    238,964       7.1 %   $ 333,932   12.2 %
                       
                       
RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE    
(Unaudited)                    
(Amounts in dollars)                  
          Fiscal Year            
          2018
           
Forecasted earnings per diluted share    $8.45 to $9.05             
Adjustments:                  
Business realignment charges     .31            
Clarcor costs to achieve     .27            
Loss on sale of investment     .07            
Adjusted forecasted earnings per diluted share    $9.10 to $9.70             

Parker-Hannifin Corporation