10-KPeriod: FY2018

Parker-Hannifin Corp Annual Report, Year Ended Jun 30, 2018

Filed August 24, 2018For Securities:PH

Summary

Parker-Hannifin Corporation, a diversified manufacturer of motion and control technologies, reported strong net sales of $14.3 billion for the fiscal year ending June 29, 2018. This represented a significant 18.9% increase over the prior year, driven by volume growth in its Diversified Industrial segment and contributions from acquisitions made in 2017. The company operates across two primary segments: Diversified Industrial (84% of net sales) and Aerospace Systems (16% of net sales), serving a broad range of mobile, industrial, and aerospace markets globally. Financially, the company demonstrated improved profitability with a higher gross profit margin and increased net income attributable to common shareholders. Despite facing headwinds such as rising raw material costs and inefficiencies from manufacturing consolidations, strategic initiatives like simplification and realignment efforts helped to offset these pressures. The company also continued its commitment to shareholder returns through share repurchases and consistent dividend payments. Looking ahead, Parker-Hannifin is focused on profitable growth in key sectors like energy, water, and transportation, while carefully considering strategic acquisitions.

Financial Highlights

56 data points
Beta

Revenue

$14.30B

24.9% Gross Margin

Net Income

$1.06B

7.4% Net Margin

EPS (Diluted)

$7.83

Total Assets

$15.32B

Cash & Equivalents

$822.14M

Free Cash Flow

$1.35B

Financial Statements
Beta
Revenue$14.30B
Cost of Revenue$10.74B
Gross Profit$3.56B
R&D Expenses$327.88M
SG&A Expenses$1.64B
Operating Income$2.04B
Interest Expense$213.87M
Net Income$1.06B
EPS (Basic)$7.98
EPS (Diluted)$7.83
Shares Outstanding (Basic)133.00M
Shares Outstanding (Diluted)135.43M

Key Highlights

  • 1Reported net sales of $14.3 billion for the fiscal year ended June 29, 2018, a significant increase of 18.9% year-over-year, largely driven by volume growth and acquisitions.
  • 2The Diversified Industrial segment continues to be the largest revenue contributor (84% of net sales), with strong performance in both North America and International operations.
  • 3The Aerospace Systems segment showed moderate growth, with higher margins attributed to a favorable product mix and increased aftermarket volume.
  • 4Gross profit margin improved to 24.7% from 23.6% in the prior year, benefiting from favorable product mix in Aerospace and cost-saving initiatives.
  • 5Net income attributable to common shareholders increased to $1.06 billion from $983 million in the prior year, reflecting operational improvements and revenue growth.
  • 6The company maintained a strong commitment to shareholder returns, repurchasing $300 million of common stock and consistently increasing dividends.
  • 7Backlog increased to $4.1 billion as of June 30, 2018, indicating a healthy pipeline of future orders, with approximately 89% scheduled for delivery within the next twelve months.

Frequently Asked Questions

Revenue growth in fiscal year 2018 was primarily driven by an increase in sales volume across both North American and International operations within the Diversified Industrial segment. Additionally, acquisitions completed in 2017 contributed approximately $970 million to the year's incremental net sales. Favorable currency exchange rates also positively impacted net sales by approximately $295 million.

Parker-Hannifin's profitability was supported by several factors. The gross profit margin increased due to higher margins in the Aerospace Systems Segment from a favorable product mix, and benefits from lower operating expenses related to simplification and realignment efforts across all segments. While raw material prices and some inefficiencies from facility consolidations posed challenges, these were partially offset by these strategic initiatives and increased sales volume.

For fiscal year 2019, Parker-Hannifin anticipates Diversified Industrial North American sales to increase between 2.6% and 5.6%, with operating margins expected between 16.4% and 17.2%. For Diversified Industrial International, sales are projected to range from a 2.5% decrease to a 0.5% increase, with operating margins between 15.3% and 15.7%. The Aerospace Systems Segment is expected to see sales increase between 2.5% and 4.5%, with operating margins between 17.2% and 17.6%. However, the company noted potential for lower Aerospace margins due to a higher concentration of commercial OEM volume and increased new product development costs.

The enactment of the Tax Cuts and Jobs Act in December 2017 had a significant impact. The company recorded a provisional net discrete income tax cost of $233 million. This included a $80 million decrease in income tax expense from revaluing tax assets/liabilities at the new 21% rate and a $297 million increase in income tax expense related to the one-time transition tax on undistributed foreign earnings. The effective tax rate for 2018 was 37.7%, compared to 26.0% in 2017, largely due to these TCJA-related adjustments.