PH Parker Hannifin Corp

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 ResultsDiversified 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.

OutlookFor 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 OrdersOrders 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 NumbersThis 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 StatementsForward-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