10-KPeriod: FY2017

Parker-Hannifin Corp Annual Report, Year Ended Jun 30, 2017

Filed August 25, 2017For Securities:PH

Summary

Parker-Hannifin Corporation's 2017 10-K filing reveals a year of significant strategic acquisition activity, most notably the purchase of Clarcor, which substantially increased the company's asset base and goodwill. This acquisition contributed significantly to the reported increase in net sales for fiscal year 2017. Despite the integration challenges and expenses associated with this acquisition, the company demonstrated resilience, with improvements in gross profit margin driven by cost-saving initiatives and restructuring. The company operates across two main segments: Diversified Industrial and Aerospace Systems. The Diversified Industrial segment, which accounts for the majority of sales, saw growth driven by both acquisitions and increased volume in international operations, particularly in the Asia Pacific region. The Aerospace Systems segment showed more modest growth, with mixed performance across military and commercial sub-segments. Looking ahead, the company projects continued sales growth in the Diversified Industrial segment, largely driven by ongoing acquisition contributions, while maintaining its focus on operational efficiencies and strategic growth areas.

Financial Highlights

56 data points
Beta

Revenue

$12.03B

23.6% Gross Margin

Net Income

$983.41M

8.2% Net Margin

EPS (Diluted)

$7.25

Total Assets

$15.49B

Cash & Equivalents

$884.89M

Free Cash Flow

$1.10B

Financial Statements
Beta
Revenue$12.03B
Cost of Revenue$9.12B
Gross Profit$2.84B
R&D Expenses$336.68M
SG&A Expenses$1.41B
Operating Income$1.79B
Interest Expense$162.44M
Net Income$983.41M
EPS (Basic)$7.37
EPS (Diluted)$7.25
Shares Outstanding (Basic)133.38M
Shares Outstanding (Diluted)135.56M

Key Highlights

  • 1Acquisition of Clarcor significantly impacted the company's financial statements, increasing assets, goodwill, and revenue, though also incurring integration costs.
  • 2Net sales increased by 5.9% to $12.0 billion in fiscal year 2017, primarily due to acquisitions and volume increases in international Diversified Industrial operations and Aerospace Systems.
  • 3Gross profit margin improved to 23.6% in 2017 from 22.3% in 2016, attributed to cost reductions from simplification initiatives and restructuring, partially offset by segment-specific margin pressures.
  • 4The Diversified Industrial segment, comprising 81% of net sales, experienced strong growth in international markets (up 5.6%) and North America (up 8.3%), driven by acquisitions and volume recovery.
  • 5The company repurchased $265 million of its common stock in 2017, a decrease from the $558 million repurchased in 2016, reflecting a shift in capital allocation priorities towards acquisitions.
  • 6Research and development expenses decreased to $336.7 million in 2017 from $359.8 million in 2016, indicating a strategic focus on integration and efficiency.
  • 7The company maintains a strong backlog of $3.8 billion at June 30, 2017, with approximately 88% scheduled for delivery within the next twelve months, providing near-term revenue visibility.

Frequently Asked Questions

The most significant event was the acquisition of Clarcor Inc. This acquisition substantially increased the company's asset base, goodwill, and revenue, contributing significantly to the growth in net sales for fiscal year 2017. While it drove top-line growth, it also involved integration expenses and strategic focus.

The Diversified Industrial segment, which is the larger segment, saw net sales increase by 5.6% internationally and 8.3% in North America, driven by acquisitions and volume increases. The Aerospace Systems segment experienced a more modest sales increase of 1.1%, with growth in military OEM and aftermarket businesses offset by a decline in commercial OEM volume.

For fiscal year 2018, Parker-Hannifin projects sales growth between 19% and 23% for Diversified Industrial North America and between 8% and 12% for Diversified Industrial International, primarily driven by contributions from 2017 acquisitions. Operating margins for Diversified Industrial North America are expected to be between 16.1% and 16.5%, and for Diversified Industrial International, between 13.4% and 13.8%. For the Aerospace Systems segment, sales are expected to increase by 1% to 3%, with operating margins projected between 15.5% and 15.9%.

Key risks include exposure to global macroeconomic conditions and their impact on demand, risks associated with its significant non-U.S. operations (including currency fluctuations and political instability), integration challenges and liabilities from acquisitions (specifically highlighted with Clarcor), potential disruptions to information technology systems, changes in demand and supply for its products, competitive pressures, and fluctuations in raw material prices.