2nd UPDATE: Parker Hannifin 2Q Net Up 4.6%; Lowers Outlook

Parker Hannifin Corp.'s (PH) fiscal second-quarter earnings rose 4.6%, but its profit was lower than expected and the diversified manufacturer trimmed its outlook for 2012 as business conditions weakened overseas.

The company lowered its profit guidance for the year to $6.90 to $7.30 a share, from guidance in October of $7.25 to $7.85 a share. Analysts had anticipated the company would earn $7.43 a share. The revision moves the company's profit target closer to the range projected in August. Parker moved up its guidance in October after particularly strong fiscal first quarter results.

"We did see some demand moderating, which is what we had anticipated," said Chairman and Chief Executive Don Washkewicz during a conference call Friday with analysts. "Internationally, we are seeing some softening in business conditions consistent with global macroeconomic indicators."

Parker's diminished outlook will likely raise investors' anxiety about Eaton Corp. (ETN) and other industrial conglomerates that compete in some of the same markets as Parker.

Parker's stock was recently trading down 5% at $80.70 a share.

The company's product lines include components for hydraulic and pneumatic gear used in construction equipment, aircraft parts, components for commercial trucks and refrigeration and air-conditioning equipment. The Cleveland-based company's customers include machinery makers Caterpillar Inc. (CAT), Deere & Co. (DE) and aerospace manufacturer Boeing Co. (BA).

Parker's orders, an indication of future sales, rose 3% in the second quarter from a year earlier, but most of the improvement was driven by an 8% increase in orders for the company's North America industrial business segment. Orders rose just 1% in the international industrial business and declined 5% in the climate and industrial controls business. Orders for the aerospace segment, meanwhile, were flat.

The company attributed the softness in aerospace orders to unsettled economic conditions in Europe, tough year-earlier comparison figures and seasonal weakness caused by the Christmas and New Year's holidays.

"December is always a lousy month from a business standpoint because of the holidays," Washkewicz said.

For the quarter ended Dec. 31, the company's operating margin increased slightly to 14.2% from 14% a year earlier. But the margin declined from the first quarter's 16.1%.

Parker's North American industrial business was the company's best-performing business segment, as sales climbed 13.2% to $1.18 billion. The segment's operating income increased 23% to $195.7 million, as the operating margin rose 1.3 percentage points from a year earlier to 16.5%.

Conversely, the operating margin for the international industrial business slipped 1 point to 13.6%, as operating income fell 1.1% to $165.9 million. Sales from the international business increased 6.2% to $1.2 billion.

Aerospace segment sales increased 8% to $496.5 million. Operating income from the business rose 10.5% to $70.3 million. Sales for the climate and industrial controls segment fell 2.9% as operating income was nearly flat from a year earlier at $9.8 million.

Overall for the quarter, Parker reported a profit of $240.8 million, or $1.56 a share, up from $230.2 million, or $1.39 a share, a year earlier. Net sales increased 8.4% to $3.11 billion.

Analysts polled by Thomson Reuters had forecast earnings of $1.62 a share on revenue of $3.1 billion.

Earlier this week, the company said it launched a tender offer to purchase the remaining 43.51% of Japanese subsidiary Taiyo Ltd. (6252.TO), which manufactures hydraulic and pneumatic gear and has annual sales of about $225 million. The offer is valued at $75 million and has the support of Taiyo's board, Parker said. Parker took a majority stake in the company in 2006.

--By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

--Ben Fox Rubin contributed to this article.

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