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Parker Hannifin Corporation (PH) released its third-quarter 2011 earnings result before the market opened today, reporting earnings per share of $1.68 and outpacing the Zacks Consensus Estimate of $1.54 and prior-year earnings of 94 cents.

The company’s strong result in the quarter was supported by its improving performance in all markets and regions.

Total Revenue

The company achieved a third quarter record sales with revenues increasing by 23.9% year over year to $3.2 billion. Sales for the quarter included 1% contribution from acquisition and 2% from currency affects. Total orders in the quarter increased by 24%.

Segment Revenue

Industrial International segment achieved highest sales growth, with its revenue increasing by 29.9% year over year to $1.3 billion. This was followed by Climate and Industrial Controls segment revenue increasing by 24.9% to $264.5 million and Industrial North America segment revenue by 23.0% to $1.2 billion. Aerospace revenue was up 12.1% to $503.8 million.

Orders increased by 20% in Industrial North America segment, 22% in Industrial International segment, 44% in Aerospace segment and 14% in Climate and Industrial Controls segment.

Income and Expenses

The company achieved a record net income of $281.6 million, an increase of 82.4% year over year. Total segment margin for the quarter was 14.8%, led by strong margin at Industrial North America segment (16.1%) and Industrial International segment (15.5%).

SG&A expense was $375.1 million in the quarter compared with $316.1 million in the third quarter of 2010.

Balance Sheet and Cash Flow

Cash and cash equivalents were $1.1 billion at the end of the quarter with long-term debt of $1.7 billion and shareholder’s equity of $5.4 billion.

The company generated cash flow from operations of $799.9 million in the first nine months of fiscal 2011 compared with cash flow from operations of $841.4 million in the prior-year period.

Outlook

Parker Hannifin increased its 2011 earnings per share from continuing operations guidance from $5.80 to $6.20 to a range of $6.20 to $6.40. The company continues to benefit from a recovering economic condition.

The company focuses on providing quality services to its customers, lean operations as well as investments in new developments which would help it to achieve strong earnings growth. Parker expects to achieve record earnings in fiscal 2011 and a strong order backlog at the end of the year.

We believe Parker Hannifin is a high-quality company that is showing good execution. The company is witnessing a recovery in aerospace demand, which positively favors its future growth.

MRO (Maintenance, Repair and Overhaul) is expected to get a boost from continued deferral of capital investment in new machines. Parker Hannifin’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.

However, the company’s domestic and foreign operations are subject to significant competitive pressures. To compete successfully, the company’s Industrial Segment and Climate & Industrial Controls Segment must excel in terms of product quality and innovation, customer service, manufacturing and distribution capability and price competitiveness.

Meanwhile, the Aerospace Segment must excel on the basis of technological and engineering capability, quality, delivery and service, and price competitiveness. Major competitors of Parker are Eaton Corporation (ETN) and Honeywell International Inc. (HON).

Parker-Hannifin Corporation is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components.

We continue to maintain a Neutral rating on Parker-Hannifin for the long term. The company has a Zacks #2 Rank (Buy recommendation) over the next one to three months.

 
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