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Parker-Hannifin Corporation$159.63$.30.19%

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 Parker Reports Fiscal 2018 Third Quarter Results
   Thursday, April 26, 2018 7:30:00 AM ET
  • Record third quarter sales increased 20% to $3.75 billion
  • Organic sales increased 8%, order rates increased 11%
  • Segment operating margins were 15.8% as reported, or 16.3% adjusted
  • EBITDA margins increased 280 basis points to 17.1% as reported, or 17.6% adjusted
  • EPS were a record at $2.70 as reported, or $2.80 adjusted
  • Fiscal 2018 full year earnings guidance increased

CLEVELAND, April 26, 2018 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today reported results for the fiscal 2018 third quarter ended March 31, 2018.  Fiscal 2018 third quarter sales increased 20% to a record $3.75 billion compared with $3.12 billion in the prior year quarter.  Net income increased to a record $366.1 million compared with $238.8 million in the third quarter of fiscal 2017.  Fiscal 2018 third quarter earnings per share were also a record at $2.70, compared with $1.75 in the prior year quarter.  Adjusted for business realignment expenses and CLARCOR costs to achieve, earnings per share were $2.80, an increase of 33% compared with $2.11 in the prior year quarter.  Cash flow from operations for the first nine months of fiscal 2018 was $904.8 million or 8.6% of sales, compared with $789.3 million or 9.2% of sales in the prior year period, or 11.8% excluding a discretionary pension contribution in fiscal 2017.  A reconciliation of earnings per share to adjusted earnings per share and cash flows from operations to cash flows from operations excluding a discretionary pension contribution is included in the financial tables of this press release. 

“We achieved record performance this quarter, supported by broad-based demand improvement across our key end markets and regions,” said Chairman and Chief Executive Officer, Tom Williams.  “Organic sales increased 8% growing faster than the overall market and positive order trends continued as orders grew 11%.  Segment operating margin performance was strong and adjusted EDITDA margins increased 120 basis points to 17.6%.  Industrial North America incremental margins were impacted by higher sales volume, which required us to run consolidating plants for longer than expected.  Our productivity metrics for these plants improved as the quarter progressed and we expect steady improvement in Industrial North America incremental margins as plant closures continue during the rest of calendar year 2018.  Overall, we are very pleased with the progress we are making.”



Segment Results
Diversified Industrial Segment:  North American third quarter sales increased 25% to $1.8 billion, and operating income increased 23% to $280.7 million compared with $227.4 million in the same period a year ago.  International third quarter sales increased 23% to $1.4 billion, and operating income increased 34% to $205.3 million compared with $153.0 million in the same period a year ago.

Aerospace Systems Segment:  Third quarter sales increased 4% to $598.4 million, and operating income increased 33% to $106.7 million compared with $80.0 million in the same period a year ago.

Parker reported the following orders for the quarter ending March 31, 2018, compared with the same quarter a year ago:

  • Orders increased 11% for total Parker
  • Orders increased 11% in the Diversified Industrial North America businesses
  • Orders increased 8% in the Diversified Industrial International businesses
  • Orders increased 17% 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 $7.76 to $7.96 per share, or $9.95 to $10.15 per share on an adjusted basis. 

Fiscal 2018 earnings are adjusted for expected business realignment expenses of approximately $50 million and CLARCOR costs to achieve of approximately $45 million, while savings remain as previously forecasted.  A reconciliation of forecasted earnings per share to adjusted forecasted earnings per share is included in the financial tables of this press release.

Williams added, “We expect record performance in fiscal year 2018 that will serve as a solid foundation for us to achieve new five year targets that include 19% total segment operating margins and a greater than 10% compound annual growth rate in adjusted earnings per share by fiscal year 2023.”

NOTICE OF CONFERENCE CALL:  Parker Hannifin's conference call and slide presentation to discuss its fiscal 2018 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.  A replay of the webcast will be accessible on Parker's investor relations website, www.phstock.com , approximately one hour after the completion of the call, and will remain available for one year.  To register for e-mail notification of future events and information available from Parker please visit www.phstock.com .

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 62 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, U.S. Tax Reform adjustments, the gain on sale and writedown of assets, net, and acquisition-related expenses; (b) the effect of business realignment charges, CLARCOR costs to achieve, U.S. Tax Reform adjustments, the gain on sale and writedown of assets, net, and acquisition-related expenses on forecasted earnings from continuing operations per share; (c) and cash flows from operations without the effect of a discretionary pension contribution. The effects of business realignment charges, CLARCOR costs to achieve, U.S. Tax Reform adjustments, the gain on sale and writedown of assets, net, acquisition-related expenses and discretionary pension contribution 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. This press release also contains references to EBITDA and adjusted EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before business realignment charges, CLARCOR costs to achieve, U.S. Tax Reform adjustments, the gain on sale and writedown of assets, net, gain on sale of a product line and acquisition-related expenses. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP, we believe that it is useful to an investor in evaluating the results of this quarter versus one year ago.

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 the 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. Additionally, the actual impact of the U.S. Tax Cuts and Jobs Act may affect future performance and earnings projections as the amounts reflected in this period are preliminary estimates and exact amounts will not be determined until a later date, and there may be other judicial or regulatory interpretations of the U.S. Tax Cuts and Jobs Act that may also affect these estimates and the actual impact on the company. 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, 2018        
CONSOLIDATED STATEMENT OF INCOME        
            
(Unaudited)   Three Months Ended March 31,  Nine Months Ended March 31, 
(Dollars in thousands except per share amounts)  2018    2017   2018    2017 
            
Net sales   $3,749,591  $3,119,139  $10,484,915  $8,533,074 
Cost of sales   2,825,008   2,383,790   7,926,956   6,534,280 
Selling, general and administrative expenses  420,595   392,036   1,234,729   1,051,583 
Interest expense   54,145   42,057   160,833   109,649 
Other (income), net   (19,984)  (13,807)  (41,953)  (90,468)
Income before income taxes   469,827   315,063   1,204,350   928,030 
Income taxes   103,697   76,216   496,363   237,545 
Net income    366,130   238,847   707,987   690,485 
Less:  Noncontrolling interests   141   174   442   378 
Net income attributable to common shareholders$365,989  $238,673  $707,545  $690,107 
            
Earnings per share attributable to common shareholders:       
Basic earnings per share  $2.75  $1.79  $5.32  $5.17 
Diluted earnings per share  $2.70  $1.75  $5.22  $5.09 
            
Average shares outstanding during period - Basic  133,032,431   133,232,378   133,107,321   133,410,622 
Average shares outstanding during period - Diluted  135,768,280   136,102,974   135,661,385   135,527,195 
            
Cash dividends per common share  $.66  $.66  $1.98  $1.92 
            
RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE    
(Unaudited)   Three Months Ended March 31,  Nine Months Ended March 31, 
(Amounts in dollars)   2018    2017   2018    2017 
Earnings per diluted share  $2.70   $1.75  $5.22   $5.09 
Adjustments:         
Business realignment charges   0.04    0.09   0.16    0.19 
Clarcor costs to achieve      0.06    -   0.16    - 
Gain on sale and writedown of assets, net     -   0.02    - 
U.S. Tax Reform one-time impact, net     -   1.65    - 
Acquisition-related expenses      0.27      0.36 
Adjusted earnings per diluted share $2.80  $2.11  $7.21   $5.64 
            
            
RECONCILIATION OF EBITDA TO ADJUSTED EBITDA        
(Dollars in thousands)         
(Unaudited)          
            
     Three Months Ended March 31,     
      2018   2017     
            
Net sales   $3,749,591  $3,119,139     
            
Earnings before income taxes  $469,827  $315,063     
Depreciation and amortization   117,100   87,458     
Interest expense   54,145   42,057     
EBITDA    641,072   444,578     
Adjustments:         
Business realignment charges   6,822   16,318     
Clarcor costs to achieve   10,636   -     
Acquisition-related expenses   -   50,880     
Adjusted EBITDA   $658,530  $511,776     
            
EBITDA margin   17.1%   14.3%     
Adjusted EBITDA margin    17.6%   16.4%     
            


BUSINESS SEGMENT INFORMATION        
(Unaudited)   Three Months Ended March 31,  Nine Months Ended March 31, 
(Dollars in thousands)   2018   2017   2018   2017 
Net sales          
Diversified Industrial:         
North America  $  1,761,845  $1,413,302  $  4,921,952  $3,701,326 
International     1,389,332   1,128,886     3,883,675   3,149,777 
Aerospace Systems     598,414   576,951     1,679,288   1,681,971 
Total   $  3,749,591  $3,119,139  $  10,484,915  $8,533,074 
Segment operating income         
            
Diversified Industrial:         
North America  $  280,694  $227,419  $  762,528  $612,043 
International     205,251   152,995     561,848   417,708 
Aerospace Systems     106,653   79,967     271,235   225,764 
Total segment operating income    592,598   460,381     1,595,611   1,255,515 
Corporate general and administrative expenses    54,138   45,747     142,430   120,707 
Income before interest and other expense       538,460   414,634     1,453,181   1,134,808 
Interest expense     54,145   42,057     160,833   109,649 
Other expense     14,488   57,514     87,998   97,129 
Income before income taxes  $  469,827  $315,063  $  1,204,350  $928,030 
            
RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN
(Unaudited)          
            
      Three Months Ended  Three Months Ended
(Dollars in thousands)    March 31, 2018 March 31, 2017
     Operating income  Operating margin  Operating income Operating margin
Total segment operating income $  592,598   15.8% $460,381  14.8%
Adjustments:         
Business realignment charges     6,822     16,318  
Clarcor costs to achieve     10,636     26,226  
Adjusted total segment operating income $  610,056   16.3% $502,925  16.1%
            
      Nine Months Ended  Nine Months Ended
     March 31, 2018 March 31, 2017
     Operating income  Operating margin  Operating income Operating margin
Total segment operating income $  1,595,611   15.2% $1,255,515  14.7%
Adjustments:         
Business realignment charges     28,476     34,960  
Clarcor costs to achieve     28,384     26,226  
Adjusted total segment operating income $  1,652,471   15.8% $1,316,701  15.4%
            


CONSOLIDATED BALANCE SHEET        
(Unaudited)    March 31,  June 30, March 31, 
(Dollars in thousands)     2018  2017  2017 
Assets         
Current assets:        
Cash and cash equivalents  $  1,089,529  $884,886 $819,563 
Marketable securities and other investments    101,206   39,318  36,758 
Trade accounts receivable, net     2,146,408   1,930,751  1,869,303 
Non-trade and notes receivable     328,111   254,987  235,924 
Inventories      1,732,759   1,549,494  1,538,644 
Prepaid expenses     165,083   120,282  118,962 
Total current assets     5,563,096   4,779,718  4,619,154 
Plant and equipment, net     1,941,799   1,937,292  1,945,739 
Deferred income taxes     36,935   36,057  65,152 
Goodwill      5,746,358   5,586,878  5,508,712 
Intangible assets, net     2,134,659   2,307,484  2,338,364 
Other assets     814,637   842,475  848,212 
Total assets  $  16,237,484  $15,489,904 $15,325,333 
           
Liabilities and equity        
Current liabilities:        
Notes payable  $  1,055,527  $1,008,465 $776,159 
Accounts payable     1,376,457   1,300,496  1,209,351 
Accrued liabilities     896,604   933,762  904,297 
Accrued domestic and foreign taxes     179,929   153,137  158,634 
Total current liabilities     3,508,517   3,395,860  3,048,441 
Long-term debt     4,818,570   4,861,895  5,255,156 
Pensions and other postretirement benefits    1,351,106   1,406,082  1,787,311 
Deferred income taxes     113,799   221,790  159,666 
Other liabilities     569,209   336,931  327,033 
Shareholders' equity     5,870,353   5,261,649  4,742,139 
Noncontrolling interests     5,930   5,697  5,587 
Total liabilities and equity  $  16,237,484  $15,489,904 $15,325,333 
           


CONSOLIDATED STATEMENT OF CASH FLOWS        
(Unaudited)   Nine Months Ended March 31,     
(Dollars in thousands)   2018    2017     
            
Cash flows from operating activities:        
Net income   $  707,987   $690,485     
Depreciation and amortization     351,316    236,543     
Stock incentive plan compensation     89,571    60,916     
(Gain) on sale of business     -    (42,994)    
(Gain) loss on disposal of assets     (26,767)  513     
(Gain) on sale of marketable securities    (1)  (1,032)    
Loss on sale and impairment of investments    33,759    -     
Net change in receivables, inventories, and trade payables   (329,428)  (35,469)    
Net change in other assets and liabilities    150,876    (169,403)    
Other, net      (72,488)  49,734     
Net cash provided by operating activities    904,825    789,293     
Cash flows from investing activities:        
Acquisitions (net of cash of $157,426 in 2017)    -    (4,067,755)    
Capital expenditures     (194,307)  (145,236)    
Proceeds from sale of plant and equipment    64,203    8,452     
Proceeds from sale of business     -    85,610     
Purchases of marketable securities and other investments   (78,488)  (451,561)    
Maturities and sales of marketable securities and other investments   20,260    1,264,721     
Other, net      5,350    (2,590)    
Net cash (used in) investing activities    (182,982)  (3,308,359)    
Cash flows from financing activities:        
Net payments for common stock activity    (199,361)  (262,248)    
Net (payments for) proceeds from debt    (71,835)  2,687,761     
Dividends      (264,332)  (257,161)    
Net cash (used in) provided by financing activities   (535,528)  2,168,352     
Effect of exchange rate changes on cash    18,328    (51,376)    
Net increase (decrease) in cash and cash equivalents    204,643    (402,090)    
Cash and cash equivalents at beginning of period    884,886    1,221,653     
Cash and cash equivalents at end of period $  1,089,529   $819,563     
            
            
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO ADJUSTED CASH FLOW FROM OPERATIONS    
(Unaudited)          
(Amounts in thousands)  Nine Months
Ended March 31,
2018
   Nine Months
Ended March 31,
2017
  
        Percent of sales    Percent of sales
As reported cash flow from operations $  904,825    8.6% $789,293 9.2%
Discretionary pension contribution     -      220,000  
Adjusted cash flow from operations $  904,825    8.6% $1,009,293 11.8%
            


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  $7.76 to $7.96    
Adjustments:      
Business realignment charges  0.27   
Clarcor costs to achieve  0.25   
Gain on sale and writedown of assets, net 0.02   
U.S. Tax Reform one-time impact, net 1.65   
Adjusted forecasted earnings per diluted share  $9.95 to $10.15    
         

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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Source: Parker-Hannifin Corporation


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