10-QPeriod: Q2 FY2009

Parker-Hannifin Corp Quarterly Report for Q2 Ended Dec 31, 2008

Filed January 27, 2009For Securities:PH

Summary

Parker-Hannifin Corporation's (PH) 10-Q filing for the period ending December 31, 2008, reveals a challenging quarter amidst a deteriorating global economic environment. Net sales declined by 5.0% year-over-year, primarily impacted by weakness in the Industrial International and Climate & Industrial Controls segments. This decline was partially offset by growth in the Aerospace segment. The company's gross profit margin compressed due to lower sales volumes leading to manufacturing inefficiencies and an unfavorable product mix. Despite these headwinds, Parker-Hannifin reported net income of $155.4 million, or $0.96 per diluted share, down from $211.9 million, or $1.23 per diluted share, in the prior year's quarter. The company's financial position remains strong, supported by substantial operating cash flows and a robust credit facility. Management is actively implementing cost-reduction initiatives and contingency plans to navigate the economic downturn and maintain financial flexibility. Strategic acquisitions continue to be a focus, with nine completed in the first six months of fiscal 2009.

Financial Highlights

29 data points
Beta

Revenue

$2.69B

21.1% Gross Margin

Net Income

$155.40M

5.8% Net Margin

EPS (Diluted)

$0.96

Cash & Equivalents

$261.99M

Free Cash Flow

$61.05M

Financial Statements
Beta
Revenue$2.69B
Cost of Revenue$2.12B
Gross Profit$567.21M
SG&A Expenses$337.18M
Interest Expense$30.31M
Net Income$155.40M
EPS (Basic)$0.97
EPS (Diluted)$0.96

Key Highlights

  • 1Net sales decreased by 5.0% to $2.69 billion for the quarter ended December 31, 2008, compared to the same period in the prior year, reflecting global economic weakness.
  • 2Diluted earnings per share (EPS) fell to $0.96 from $1.23 in the prior year's quarter, attributed to lower sales and margin pressures.
  • 3Gross profit margin declined to 21.1% from 22.4% year-over-year, impacted by lower sales volumes and manufacturing inefficiencies.
  • 4The company completed nine acquisitions during the first six months of fiscal 2009, contributing approximately $179 million in sales for the current quarter.
  • 5Cash flow from operating activities was $444.5 million for the six months ended December 31, 2008, a decrease from $473.6 million in the prior year.
  • 6Notes payable increased significantly to $1.02 billion from $118.9 million, primarily to fund acquisitions and share repurchases.
  • 7The company's debt-to-equity ratio increased to 38.8% from 28.3% as of June 30, 2008, exceeding its target of 37%, though credit ratings remained unaffected.
  • 8Significant charges related to legal proceedings concerning marine oil and gas hose supply activities are ongoing, with a reserve of $16.1 million established.

Frequently Asked Questions

The company experienced a 5.0% decline in net sales for the quarter ended December 31, 2008, primarily due to weakening demand in its Industrial International and Climate & Industrial Controls segments. This led to a decrease in diluted earnings per share to $0.96 from $1.23 in the prior year's quarter. Gross profit margin also compressed due to lower sales volumes and manufacturing inefficiencies.

Parker-Hannifin maintains a strong financial position with substantial operating cash flows and access to a $1.5 billion credit facility. However, notes payable increased significantly to fund acquisitions and share repurchases, leading to a debt-to-equity ratio of 38.8%, which is above the company's target. Management is implementing cost controls and contingency plans to navigate the economic uncertainty and expects to meet its financial goals.

Parker-Hannifin completed nine acquisitions in the first six months of fiscal 2009, including Legris SA and Origa Group, with aggregate annual revenues of approximately $532 million. These acquisitions contributed to sales growth, particularly in the Industrial North America and Aerospace segments, and are being funded primarily by cash on hand and commercial paper borrowings.

Yes, the company is involved in ongoing antitrust investigations related to marine oil and gas hose supply activities in multiple jurisdictions, including the US, Europe, Brazil, and Korea. Additionally, class action lawsuits have been filed alleging price fixing and market allocation in the marine hose industry. A reserve of $16.1 million has been established for potential civil damages related to these proceedings.