01—Abstract
Summary
Summary of the 10-K filed August 26, 2020. Cited figures are marked; the original filing is the authoritative source.
Parker-Hannifin Corporation's fiscal year 2020 (ending June 29, 2020) filings reflect a company navigating a challenging global environment, particularly the impact of the COVID-19 pandemic.
Net sales decreased to $13.7 billiona from $14.3 billion in the prior year, primarily due to lower volumes across both the Diversified Industrial and Aerospace Systems segments. The company proactively took measures to preserve cash and reduce costs, including salary reductions, reduced work schedules, and a suspension of its share repurchase program. Despite these headwinds, Parker-Hannifin successfully integrated two significant acquisitions (Lord and Exotic) which contributed positively to sales, though also increased SG&A expenses and intangible asset amortization.
Looking ahead, the company remains focused on strategic growth opportunities in sectors like energy, water, food, environment, defense, life sciences, infrastructure, and transportation. The company's diversified product portfolio and global reach provide resilience, and its commitment to innovation and customer service positions it to capitalize on market recoveries. Investors should note the increased debt levels resulting from acquisitions and the ongoing efforts to manage operational complexities and costs in a dynamic economic landscape.
02—Key points
Key Highlights
- Net sales for FY2020 were $13.7 billion, a decrease from $14.3 billion in FY2019, impacted by lower volumes across both segments.
- The company completed two significant acquisitions in FY2020: LORD Corporation and Exotic Metals Forming Company, which contributed positively to sales.
- Selling, General, and Administrative (SG&A) expenses increased due to acquisition-related costs and intangible asset amortization, though offset by cost-saving measures and lower discretionary spending.
- The COVID-19 pandemic significantly impacted operations, leading to temporary facility closures, reduced customer demand, and supply chain disruptions, particularly in the aerospace sector.
- The company suspended its share repurchase program in March 2020 due to business uncertainty related to the pandemic.
- Backlog increased to $5.1 billion at June 30, 2020, from $4.2 billion in the prior year, driven by acquisitions and military OEM/aftermarket orders.
- Parker-Hannifin continues to focus on long-term growth opportunities in key sectors and maintain a strong financial position, including a credit rating of BBB+ from Fitch and S&P.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Parker-Hannifin Corp kept $0.09.
- Revenue$13.70B100.0%
- Cost of revenue−$10.29B75.2%
- Gross profit$3.40B24.8%
- Operating costs−$1.44B10.5%
- Operating income$1.97B14.4%
- Interest, other & tax−$764.4M5.6%
- Net income$1.20B8.8%
04—Financials
Financial Highlights
Figures from 10-KFY2020filed August 26, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $13.70B$14.32B | −4.4% |
| Cost of Revenue | $10.29B$10.69B | −3.7% |
| Gross Profit | $3.40B$3.63B | −6.3% |
| R&D Expenses | $237.00M$294.85M | −19.6% |
| SG&A Expenses | $1.66B$1.54B | +7.3% |
| Operating Income | $1.97B$2.24B | −12.1% |
| Interest Expense | $308.16M$190.14M | +62.1% |
| Net Income | $1.20B$1.52B | −21.1% |
| EPS (Basic) | $9.36$11.73 | −20.2% |
| EPS (Diluted) | $9.26$11.57 | −20.0% |
| Shares Outstanding (Basic) | 128.42M130.00M | −1.2% |
| Shares Outstanding (Diluted) | 129.81M131.78M | −1.5% |
05—Questions
Frequently Asked Questions
What was the primary impact of COVID-19 on Parker-Hannifin's business in FY2020?
The COVID-19 pandemic led to disruptions in operations, including potential facility closures, reduced demand from customers, and impacts on the supply chain. The aerospace industry was particularly affected due to travel restrictions and decreased demand. The company implemented cost-saving measures and suspended its share repurchase program in response to the uncertainty.
How did the acquisitions of LORD Corporation and Exotic Metals Forming Company affect the company's financial performance?
These acquisitions contributed approximately $949 million in net sales during the period they were included and strengthened the company's product offerings, particularly in engineered materials and aerospace components. However, they also led to increased SG&A expenses due to acquisition-related transaction and integration costs, as well as higher intangible asset amortization.
What is the company's outlook for future growth?
Parker-Hannifin is focused on strategic growth opportunities in sectors such as energy, water, food, environment, defense, life sciences, infrastructure, and transportation. The company aims to achieve this through customer focus, innovation, operational efficiency, and strategic acquisitions.
How has the company managed its debt levels, especially after recent acquisitions?
The company's long-term debt increased significantly due to the financing of the LORD and Exotic acquisitions. Parker-Hannifin has a goal to maintain a strong investment-grade credit profile and has extended its multi-currency credit agreement to ensure liquidity. The company's debt-to-equity ratio was 0.58 to 1.0 at June 30, 2020, which was within its restrictive covenant limit.
06—Continue