10-QPeriod: Q3 FY2009

Parker-Hannifin Corp Quarterly Report for Q3 Ended Mar 31, 2009

Filed May 5, 2009For Securities:PH

Summary

Parker-Hannifin Corporation (PH) reported a significant decline in financial performance for the quarter ending March 31, 2009, reflecting the challenging global economic environment. Net sales decreased by 26.3% year-over-year to $2.34 billion, driven by lower volume across most segments, particularly the Industrial and Climate & Industrial Controls divisions. This decline in sales led to a substantial drop in net income to $53.4 million, or $0.33 per diluted share, compared to $255.4 million, or $1.49 per diluted share, in the prior year. The company is actively managing costs through workforce reductions, salary freezes, and short work weeks, and has recorded business realignment charges to adapt to current and anticipated customer demand. Despite the downturn, Parker-Hannifin maintained a strong balance sheet with significant liquidity, though working capital and the current ratio declined. The company continued to pursue strategic acquisitions, notably Legris SA and Origa Group, to strengthen its market position. However, significant legal proceedings related to alleged price-fixing by a subsidiary (Parker ITR S.r.l.) in the marine hose business continue to pose a risk, with the European Commission imposing a fine. The company has reserved $36.9 million for potential losses related to these matters.

Financial Highlights

29 data points
Beta

Revenue

$2.34B

18.6% Gross Margin

Net Income

$53.42M

2.3% Net Margin

EPS (Diluted)

$0.33

Cash & Equivalents

$166.55M

Free Cash Flow

$219.78M

Financial Statements
Beta
Revenue$2.34B
Cost of Revenue$1.91B
Gross Profit$436.11M
SG&A Expenses$317.99M
Interest Expense$28.39M
Net Income$53.42M
EPS (Basic)$0.33
EPS (Diluted)$0.33

Key Highlights

  • 1Net sales significantly decreased by 26.3% to $2.34 billion for the quarter ended March 31, 2009, compared to $3.18 billion in the prior year, reflecting a broad economic slowdown impacting demand.
  • 2Net income plummeted to $53.4 million ($0.33 diluted EPS) from $255.4 million ($1.49 diluted EPS) in the same period last year, indicating a sharp decline in profitability.
  • 3Gross profit margin fell from 23.1% to 18.6%, attributed to lower sales volumes, manufacturing inefficiencies, and unfavorable product mix.
  • 4The Industrial segment experienced a notable sales decline, especially in international markets, with operating income significantly impacted by lower volume and business realignment charges.
  • 5The Climate & Industrial Controls segment saw a substantial revenue decrease of 38.9% (excluding currency effects) and reported an operating loss for the quarter.
  • 6The company incurred business realignment charges totaling $25.2 million in the third quarter of fiscal 2009 to restructure operations in response to economic conditions.
  • 7Despite the challenging environment, the company completed nine acquisitions during the first nine months of fiscal 2009, including Legris SA and Origa Group.

Frequently Asked Questions

The primary reason for the significant decline in net sales and income is the widespread deterioration of global economic conditions, which has led to reduced customer demand across most of Parker-Hannifin's key markets. This economic downturn is reflected in lower order rates and reduced manufacturing activity globally.

Parker-Hannifin is actively managing costs by implementing initiatives such as workforce reductions, salary freezes, and short work weeks. The company has also recorded business realignment charges to restructure its operations in alignment with current and anticipated customer demand, aiming to improve future operational efficiency and profitability.

Parker ITR S.r.l. (a subsidiary) is involved in multiple lawsuits and regulatory investigations related to allegations of price-fixing and restraint of trade in the marine hose market. The European Commission has fined Parker ITR and the company has appealed this decision. The company has also reached a settlement for class action litigation in the United States and has established a reserve of $36.9 million for known and potential losses related to these matters.

During the first nine months of fiscal 2009, Parker-Hannifin completed nine acquisitions, contributing approximately $532 million in aggregate annual revenues. While acquisitions add to reported sales, they also increase Selling, General & Administrative expenses and can initially impact margins as they are integrated into the company's operations.