10-QPeriod: Q1 FY2014

Parker-Hannifin Corp Quarterly Report for Q1 Ended Sep 30, 2013

Filed November 4, 2013For Securities:PH

Summary

Parker-Hannifin Corporation reported modest top-line growth for the quarter ending September 30, 2013, with net sales increasing slightly to $3.226 billion from $3.215 billion in the prior year's comparable quarter. This growth was driven by strength in its Diversified Industrial International businesses and the Aerospace Systems Segment, which helped offset a decline in its Diversified Industrial North America operations. Despite the slight sales increase, profitability saw a notable improvement, with net income attributable to common shareholders rising to $244.3 million, or $1.61 per diluted share, from $239.7 million, or $1.57 per diluted share, in the prior year. This enhanced profitability was supported by a higher gross profit margin and a lower effective tax rate. The company also demonstrated improved cash flow generation, with operating activities providing $282.7 million in cash compared to a use of $7.0 million in the prior year, partly due to better working capital management. Financially, Parker-Hannifin maintained a strong balance sheet, with cash and cash equivalents increasing to $1.95 billion and a manageable debt-to-equity ratio. Investors should note the strategic realignment efforts, including business divestitures and workforce reductions, which are expected to impact future results, and the significant potential gain from a joint venture finalized in October 2013 with GE Aviation, expected to be recognized in the next quarter.

Financial Highlights

53 data points
Beta

Revenue

$3.23B

23.2% Gross Margin

Net Income

$244.32M

7.6% Net Margin

EPS (Diluted)

$1.61

Total Assets

$12.79B

Cash & Equivalents

$1.95B

Free Cash Flow

$226.04M

Financial Statements
Beta
Revenue$3.23B
Cost of Revenue$2.48B
Gross Profit$749.74M
SG&A Expenses$406.93M
Operating Income$464.91M
Interest Expense$20.96M
Net Income$244.32M
EPS (Basic)$1.64
EPS (Diluted)$1.61
Shares Outstanding (Basic)149.24M
Shares Outstanding (Diluted)151.86M

Key Highlights

  • 1Net sales for the quarter were $3.226 billion, a slight increase of 0.3% year-over-year.
  • 2Net income attributable to common shareholders increased to $244.3 million, up 1.9% from $239.7 million in the prior year's quarter.
  • 3Diluted earnings per share rose to $1.61, compared to $1.57 in the prior year's quarter.
  • 4Cash flow from operations significantly improved, generating $282.7 million compared to an outflow of $7.0 million in the prior year.
  • 5The company's Diversified Industrial Segment saw mixed performance, with international operations growing slightly while North American operations declined.
  • 6The Aerospace Systems Segment experienced a sales increase driven by commercial OEM and aftermarket businesses.
  • 7A significant after-tax gain of approximately $255 million is expected in the second quarter of fiscal 2014 from a joint venture with GE Aviation.

Frequently Asked Questions

The slight increase in net sales was primarily driven by higher volumes in the Diversified Industrial International businesses and the Aerospace Systems Segment, which more than offset lower volumes in the Diversified Industrial North American businesses. Acquisitions made within the last 12 months also contributed approximately $60 million to sales.

Profitability improved, with net income attributable to common shareholders increasing by 1.9% to $244.3 million. This was supported by an increase in gross profit margin to 23.2% from 22.9% and a lower effective tax rate of 24.6% compared to 28.6% in the prior year.

For fiscal 2014, the Diversified Industrial Segment is projected to see sales growth between flat and 4.0% for North America and between 0.8% and 4.2% for International. The Aerospace Systems Segment is expected to see sales decrease between 3.0% and 1.4%, primarily due to a joint venture impacting reported sales. Operating margins are expected to be between 16.5%-17.0% for Diversified Industrial North America and 11.4%-11.8% for Diversified Industrial International, while Aerospace Systems margins are projected between 11.6%-12.2%.

Yes, in October 2013, Parker-Hannifin finalized a joint venture with GE Aviation, through which it sold a 50% equity interest in a subsidiary. The company expects to recognize an estimated after-tax gain of approximately $255 million in the second quarter of fiscal 2014 from this transaction, though this is subject to future accounting adjustments.