01—Abstract
Summary
Summary of the 10-K filed August 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Parker-Hannifin's fiscal 2012 (year ended June 30, 2012) was a strong year on the top line and earnings.
Net sales rose 6.5% to $13.1 billiona, and net income attributable to common shareholders climbed about 10% to $1.15 billion, with diluted EPS of $7.45 versus $6.37 in fiscal 2011. Growth was led by the Industrial Segment (about 77% of sales) and Aerospace (about 16%, up 9.4%), while Climate & Industrial Controls (about 7%) declined 2.3%. Gross margin improved to 24.2% and North American Industrial operating margins expanded to 17.8%, though International Industrial margins compressed as European and Asia Pacific growth slowed.
Management guided to 2013 sales growth of roughly 2%-9% across segments, with North American Industrial sales expected to rise 5.1%-9.1%. Cash generation and capital returns were also notable. Operating cash flow reached $1.53 billionb, up from $1.17 billion, helped by the absence of $400 million in voluntary pension contributions made in 2011.
The company repurchased about 6.4 million shares for $455 millionc and paid $241 million in dividends, extending a streak of 248 consecutive quarterly dividend payments. Total debt was $1.73 billion, with a debt-to-capitalization ratio of 26.1% against a 37% internal ceiling, and $1.5 billion of undrawn revolving credit capacity. The main investor concerns are balance sheet and legal items.
Pension and postretirement liabilities jumped to $1.91 billiond from $863 million, and shareholders' equity fell to $4.90 billion from $5.38 billion, largely due to a $598 million pension-related hit to other comprehensive income. The company also faces an ongoing Parker ITR marine hose antitrust matter in Brazil and a €8.32 million EU fine it is appealing, along with a pending False Claims Act suit against Parker ITR. Separately, a planned divestiture of the Mobile Climate Systems automotive business, announced August 13, 2012, is expected to produce a pre-tax gain of about $30 million.
02—Key points
Key Highlights
- Net sales increased 6.5% to $13.15 billion in FY2012, with the Industrial Segment (77% of sales) and Aerospace (+9.4%) driving growth, while Climate & Industrial Controls declined 2.3%.
- Diluted EPS rose to $7.45 from $6.37 (+17%), supported by gross margin expansion to 24.2% and higher North American Industrial operating margins of 17.8%.
- Operating cash flow grew to $1.53 billion from $1.17 billion, aided by the absence of $400 million in 2011 voluntary pension contributions.
- Pension and postretirement liabilities more than doubled to $1.91 billion, and shareholders' equity fell to $4.90 billion from $5.38 billion, driven by a $598 million pension-related charge to other comprehensive income.
- Shareholder returns remained substantial: about $455 million in share repurchases, $241 million in dividends, and a dividend increase to an annual rate of $1.64.
- Balance sheet remains conservative, with a debt-to-capitalization ratio of 26.1% (versus a 37% policy ceiling), $1.5 billion in undrawn credit lines, and a 2013 maturity of $225 million in senior notes.
- Legal and regulatory overhang persists from the Parker ITR marine hose cartel investigations, including an ongoing Brazilian probe, a €8.32 million EU fine under appeal, and a pending False Claims Act suit.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Parker-Hannifin Corp kept $0.09.
- Revenue$13.15B100.0%
- Cost of revenue−$9.96B75.8%
- Gross profit$3.19B24.2%
- Operating costs−$1.19B9.0%
- Operating income$2.00B15.2%
- Interest, other & tax−$850.7M6.5%
- Net income$1.15B8.8%
04—Financials
Financial Highlights
Figures from 10-KFY2012filed August 24, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $13.15B$12.35B | +6.5% |
| Cost of Revenue | $9.96B$9.39B | +6.1% |
| Gross Profit | $3.19B$2.96B | +7.7% |
| R&D Expenses | $365.70M$359.46M | +1.7% |
| SG&A Expenses | $1.52B$1.47B | +3.5% |
| Operating Income | $2.00B$1.82B | +9.8% |
| Interest Expense | $92.79M$99.70M | −6.9% |
| Net Income | $1.15B$1.05B | +9.8% |
| EPS (Basic) | $7.62$6.51 | +17.1% |
| EPS (Diluted) | $7.45$6.37 | +17.0% |
| Shares Outstanding (Basic) | 151.22M161.13M | −6.1% |
| Shares Outstanding (Diluted) | 154.66M164.80M | −6.1% |
05—Questions
Frequently Asked Questions
How did Parker-Hannifin perform financially in fiscal 2012?
Net sales rose 6.5% to $13.1 billion, and net income attributable to common shareholders increased to $1.15 billion from $1.05 billion. Diluted EPS was $7.45, up from $6.37. Growth came mainly from the Industrial and Aerospace segments, while Climate & Industrial Controls sales declined slightly.
What is the outlook for fiscal 2013?
Management expects North American Industrial sales to rise 5.1% to 9.1%, International Industrial sales to range from a 2% decline to a 2% increase, Aerospace sales to grow 4.4% to 7.4%, and Climate & Industrial Controls sales to grow 2.1% to 6.2%. Operating margin guidance ranges from roughly 10% to 18%, depending on segment and region.
Is the company's balance sheet a concern for investors?
Total debt is manageable at $1.73 billion, with a debt-to-capitalization ratio of 26.1%, below the company's 37% internal target. However, pension and postretirement liabilities rose sharply to $1.91 billion and reduced shareholders' equity, so investors should watch future pension funding needs, which the company expects to be about $281 million in 2013.
What are the main legal risks disclosed?
Parker ITR, a subsidiary acquired in 2002, faces investigations and lawsuits over alleged price-fixing and bid-rigging in the marine hose business. These include an ongoing Brazilian competition investigation, a European Commission fine of €25.61 million on Parker ITR (with €8.32 million joint liability for the Company) that is under appeal, and a False Claims Act suit that was dismissed as to the Company but remains pending against Parker ITR. The company says it cannot predict the outcomes with certainty.
How is the company returning capital to shareholders?
Parker repurchased about 6.4 million shares for $455 million in fiscal 2012 at an average price of $71.20, and paid $241 million in dividends. The company has raised its dividend for 56 consecutive fiscal years, and the current annual rate is $1.64. Board authorization for repurchases was temporarily expanded in April 2012 and then reverted to a 15 million share program on July 1, 2012.
06—Continue