01—Abstract
Summary
Summary of the 10-K filed August 26, 2011. Cited figures are marked; the original filing is the authoritative source.
Parker-Hannifin's fiscal 2011 (year ended June 30, 2011) was a strong recovery year.
Net sales rose 23.5% to $12.35 billiona from $9.99 billion, driven by higher volume in all segments, with the Industrial Segment (76% of sales) leading. Gross margin expanded to 24.0% from 21.5%, and diluted EPS more than doubled to $6.37 from $3.40. Net income attributable to common shareholders reached $1.05 billion, versus $554 million in fiscal 2010.
Management attributes the improvement to rising global industrial demand, operating leverage from higher volume, lower business realignment charges ($16.5 millionb in 2011 versus $48.5 million in 2010), and currency tailwinds of roughly $205 million on sales. Backlog grew to $3.8 billion from $3.1 billion, with about 86% scheduled for delivery within twelve months, which supports near-term revenue visibility. The balance sheet strengthened over the year.
The debt-to-debt-plus-equity ratio fell to 24.7% from 28.9%, against a company goal of no more than 37%. Shareholders' equity rose to $5.38 billionc, and the company repurchased about 8.0 million shares for roughly $693 million at an average of $86.54. Operating cash flow was $1.17 billion, slightly below the prior year, mainly because the company made $400 million of voluntary contributions to its domestic pension plans and absorbed higher working capital needs.
Dividends were raised to an annual rate of $1.48d and have been paid for 244 consecutive quarters. Management guided to continued growth in fiscal 2012, with Industrial North American sales expected to rise 4.2% to 8.2%, Industrial International sales 8.6% to 12.6%, Aerospace 3% to 6%, and Climate & Industrial Controls 3.6% to 7.6%. Key risks for investors include a legal matter involving Parker ITR, a subsidiary acquired in 2002 that faces a Brazilian competition investigation and a European Commission fine that the company is appealing, along with a False Claims Act suit still pending against the subsidiary.
The company also has an environmental reserve of $15.3 million, with a possible range of up to $72.1 million, and it carries roughly $863 million in pension and postretirement liabilities. Because 46% of sales come from outside the United States, currency and global economic conditions remain material sensitivities. Overall, the filing shows a company that rebounded sharply on volume, margin recovery, and disciplined capital management.
02—Key points
Key Highlights
- Net sales grew 23.5% to $12.35 billion (from $9.99 billion), with growth across all segments and the largest increase in the Industrial Segment.
- Diluted EPS rose to $6.37 from $3.40, and net income attributable to common shareholders more than doubled to $1.05 billion.
- Gross profit margin expanded to 24.0% from 21.5%, aided by volume-driven manufacturing efficiencies and lower business realignment charges.
- Backlog increased to $3.8 billion from $3.1 billion, with approximately 86% scheduled for delivery in the next twelve months.
- Debt-to-debt-plus-equity ratio improved to 24.7% from 28.9%, and the company repurchased about 8.0 million shares for roughly $693 million.
- Operating cash flow was $1.17 billion, reduced by $400 million in voluntary domestic pension contributions; the annual dividend rate is $1.48.
- Fiscal 2012 guidance calls for continued growth across all segments, with Industrial International sales expected up 8.6% to 12.6%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Parker-Hannifin Corp kept $0.08.
- Revenue$12.35B100.0%
- Cost of revenue−$9.39B76.0%
- Gross profit$2.96B24.0%
- Operating costs−$1.14B9.2%
- Operating income$1.82B14.8%
- Interest, other & tax−$773.9M6.3%
- Net income$1.05B8.5%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed August 26, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $12.35B$9.99B | +23.5% |
| Cost of Revenue | $9.39B$7.85B | +19.6% |
| Gross Profit | $2.96B$2.15B | +37.9% |
| R&D Expenses | $359.46M$316.18M | +13.7% |
| SG&A Expenses | $1.47B$1.28B | +14.9% |
| Operating Income | $1.82B$1.14B | +59.5% |
| Interest Expense | $99.70M$103.60M | −3.8% |
| Net Income | $1.05B$554.07M | +89.4% |
| EPS (Basic) | $6.51$3.44 | +89.2% |
| EPS (Diluted) | $6.37$3.40 | +87.4% |
| Shares Outstanding (Basic) | 161.13M160.91M | +0.1% |
| Shares Outstanding (Diluted) | 164.80M162.90M | +1.2% |
05—Questions
Frequently Asked Questions
What drove Parker-Hannifin's revenue and earnings growth in fiscal 2011?
Growth was driven primarily by higher volume across all segments, especially the Industrial Segment, which benefited from stronger distributor and end-user demand in construction equipment, heavy-duty truck, mining, and agriculture markets. Currency translation added roughly $205 million to sales, and acquisitions contributed about $54 million. Lower business realignment charges and operating leverage on higher volume also lifted margins.
How strong is Parker-Hannifin's balance sheet and liquidity position?
The balance sheet strengthened, with the debt-to-debt-plus-equity ratio falling to 24.7% from 28.9%, well below the company's 37% ceiling. The company had a $1.5 billion revolving credit facility fully available at June 30, 2011, no commercial paper outstanding at year-end, and a current ratio of 1.80. Its senior debt is rated investment grade, and management aims to keep at least an A rating.
What are the most significant legal and environmental risks disclosed?
The main legal exposure involves Parker ITR, a subsidiary acquired in 2002, which faces a pending Brazilian competition investigation, a European Commission cartel fine (of which Parker is jointly liable for €8.32 million) under appeal, and a False Claims Act suit still pending against the subsidiary. On the environmental side, the company holds a $15.3 million reserve, and its estimated total liability ranges from $15.3 million to $72.1 million.
What is the outlook for fiscal 2012?
Management expects Industrial North American sales to rise 4.2% to 8.2% and Industrial International sales to rise 8.6% to 12.6%, with operating margins of 16.5% to 17.1% and 15.2% to 15.8%, respectively. Aerospace sales are projected to grow 3% to 6%, and Climate & Industrial Controls sales 3.6% to 7.6%. Management also cautioned that further business realignment charges may be recorded in 2012.
How much capital is the company returning to shareholders?
In fiscal 2011, the company repurchased about 8.0 million shares for approximately $693 million, a sharp increase from about $25 million in 2010. It paid $206 million in dividends, and its annual dividend rate is $1.48 per share. Dividends have been paid for 244 consecutive quarters, and the company has increased its dividend for 55 consecutive fiscal years.
06—Continue