10-QPeriod: Q3 FY2017

Parker-Hannifin Corp Quarterly Report for Q3 Ended Mar 31, 2017

Filed May 9, 2017For Securities:PH

Summary

Parker-Hannifin Corporation's Q3 FY17 report shows a strong rebound in performance compared to the prior year's third quarter and a solid increase in year-to-date results. Revenue for the quarter grew by 10.3% to $3.12 billion, driven by robust performance in the Diversified Industrial segment, particularly in North America, and a modest increase in the Aerospace Systems segment. Net income attributable to common shareholders surged by 27.6% year-over-year for the quarter to $238.7 million, with diluted EPS increasing to $1.75. The significant acquisition of CLARCOR Inc. in February 2017 has substantially expanded the company's footprint in filtration products, contributing positively to the Diversified Industrial segment. The company is actively managing its business through ongoing simplification initiatives and strategic acquisitions, while also navigating a dynamic economic environment. For the nine months ended March 31, 2017, net sales increased 1.5% to $8.53 billion, and net income attributable to common shareholders rose by 22.1% to $690.1 million. Diluted EPS for the nine-month period reached $5.09. The company's balance sheet reflects the impact of the CLARCOR acquisition, with increases in goodwill and intangible assets, and higher levels of long-term debt used to finance the transaction. Despite increased debt, the company maintains a solid liquidity position and remains compliant with its financial covenants. Management remains focused on profitable growth, customer service, and strategic acquisitions while navigating global economic uncertainties.

Financial Highlights

54 data points
Beta

Revenue

$3.12B

23.6% Gross Margin

Net Income

$238.67M

7.7% Net Margin

EPS (Diluted)

$1.75

Total Assets

$15.33B

Cash & Equivalents

$819.56M

Free Cash Flow

$311.24M

Financial Statements
Beta
Revenue$3.12B
Cost of Revenue$2.38B
Gross Profit$735.35M
SG&A Expenses$392.04M
Operating Income$414.63M
Interest Expense$42.06M
Net Income$238.67M
EPS (Basic)$1.79
EPS (Diluted)$1.75
Shares Outstanding (Basic)133.23M
Shares Outstanding (Diluted)136.10M

Key Highlights

  • 1Net sales for the third quarter of fiscal 2017 increased by 10.3% to $3.12 billion compared to the same period in fiscal 2016.
  • 2Net income attributable to common shareholders for the third quarter increased by 27.6% to $238.7 million, resulting in diluted EPS of $1.75.
  • 3The company completed the significant acquisition of CLARCOR Inc. in February 2017 for approximately $4.11 billion, integrating it into the Diversified Industrial segment.
  • 4The Diversified Industrial segment saw a 12.1% increase in net sales for the quarter, driven by both North American and International operations, with operating margins improving significantly.
  • 5The Aerospace Systems segment reported a 2.7% increase in net sales for the quarter, though operating margins saw a slight decrease due to higher expenses.
  • 6Total assets increased significantly to $15.33 billion from $12.03 billion, largely due to the CLARCOR acquisition which added substantial goodwill and intangible assets.
  • 7Cash flow from operations remained strong, providing $789.3 million for the nine-month period, supporting investing and financing activities, including debt issuance for acquisitions.

Frequently Asked Questions

The acquisition of CLARCOR Inc. significantly increased Parker-Hannifin's total assets, goodwill, and intangible assets. For the nine months ended March 31, 2017, the company recorded approximately $4.11 billion in net assets acquired, including significant amounts of goodwill and intangible assets. CLARCOR's results from its acquisition date (February 28, 2017) are included in the company's financial statements, contributing $135.9 million in net sales and a $13.6 million operating loss during the reporting period. The acquisition was primarily financed through debt issuance.

The Diversified Industrial segment demonstrated strong performance, with net sales increasing by 12.1% year-over-year to $2.54 billion and operating margins improving significantly due to higher volume and cost efficiencies from the Simplification initiative. The Aerospace Systems segment also saw a modest increase in net sales, up 2.7% to $577 million, but experienced a decrease in operating margin to 13.9% from 15.0% due to higher development, warranty, and business realignment expenses, partly offset by favorable contract settlements in the prior year.

Management is optimistic about profitable growth opportunities and intends to focus on key areas like energy, water, food, environment, defense, life sciences, infrastructure, and transportation. They emphasize customer service, the 'Win Strategy' initiatives, engineering innovation, and strategic acquisitions. While aware of potential challenges like changing business relationships, raw material costs, and global economic factors, the company expects continued growth in its Diversified Industrial segment and a stable to slightly growing performance in its Aerospace Systems segment. The company also anticipates realizing cost savings from its ongoing Simplification initiative.

Following the CLARCOR acquisition and related debt issuances, long-term debt increased substantially. As of March 31, 2017, total debt payable within one year and long-term debt amounted to approximately $776 million and $5.26 billion, respectively. Despite the increased debt, the company maintains a strong liquidity position with $819.6 million in cash and cash equivalents and $1.25 billion available under its revolving credit facility. The company is compliant with its debt covenants and expects to remain so, although certain credit ratings were temporarily below its 'A' rating target.