10-QPeriod: Q3 FY2018

Parker-Hannifin Corp Quarterly Report for Q3 Ended Mar 31, 2018

Filed May 2, 2018For Securities:PH

Summary

Parker-Hannifin Corporation (PH) reported a significant increase in net sales for the third quarter and the first nine months of fiscal year 2018, driven primarily by strong performance in its Diversified Industrial segment, both in North America and internationally. This growth was bolstered by a combination of organic demand across various end markets and contributions from recent acquisitions. The company also saw an improvement in gross profit margin, largely due to higher margins in the Aerospace Systems segment, partially offset by pressures in the Diversified Industrial segment. Profitability showed a substantial improvement, with net income attributable to common shareholders rising considerably in the third quarter compared to the prior year. Diluted earnings per share also saw a strong increase. These positive results reflect the company's ongoing strategic initiatives, including cost management and the integration of acquisitions. Investors should note the ongoing impact of the Tax Cuts and Jobs Act, which affected the effective tax rate, and the company's continued focus on operational efficiency and strategic growth opportunities.

Financial Highlights

55 data points
Beta

Revenue

$3.75B

24.8% Gross Margin

Net Income

$366.13M

9.8% Net Margin

EPS (Diluted)

$2.70

Total Assets

$16.24B

Cash & Equivalents

$1.09B

Free Cash Flow

$394.94M

Financial Statements
Beta
Revenue$3.75B
Cost of Revenue$2.82B
Gross Profit$929.79M
SG&A Expenses$416.46M
Operating Income$538.46M
Interest Expense$54.15M
Net Income$366.13M
EPS (Basic)$2.75
EPS (Diluted)$2.70
Shares Outstanding (Basic)133.03M
Shares Outstanding (Diluted)135.77M

Key Highlights

  • 1Net sales increased by 20.2% to $3,749.6 million for the three months ended March 31, 2018, and by 22.9% to $10,484.9 million for the nine months ended March 31, 2018, compared to the prior-year periods.
  • 2Net income attributable to common shareholders increased significantly by 53.4% to $366.0 million for the three months ended March 31, 2018, compared to the prior year.
  • 3Diluted earnings per share rose to $2.70 for the three months ended March 31, 2018, from $1.75 in the prior-year period.
  • 4Gross profit margin improved to 24.7% for the quarter and 24.4% for the nine months, up from 23.6% and 23.4% respectively, in the prior year.
  • 5The Diversified Industrial segment, particularly North America and International operations, was the primary driver of sales growth.
  • 6The company's effective tax rate decreased due to the U.S. Tax Cuts and Jobs Act, although one-time adjustments related to the act increased the nine-month effective tax rate.
  • 7Cash provided by operating activities increased to $904.8 million for the nine months ended March 31, 2018, up from $789.3 million in the prior year.

Frequently Asked Questions

The substantial increase in net sales for both the third quarter and the first nine months of fiscal year 2018 was primarily driven by higher sales in the Diversified Industrial segment, both in North America and internationally. This growth was influenced by increased demand from distributors and end-users across various markets such as construction, oil and gas, and industrial machinery, as well as the contribution from recent acquisitions, notably CLARCOR, Inc.

The TCJA resulted in a lower U.S. corporate income tax rate, which reduced Parker-Hannifin's effective tax rate for the current quarter compared to the prior year. However, the company also recorded provisional charges related to the TCJA, including a one-time transition tax on unremitted foreign earnings, which increased the effective tax rate for the first nine months of fiscal 2018. The company continues to evaluate the full impact of the TCJA.

For the Diversified Industrial segment, the company anticipates continued sales growth in both North America and International operations, driven by acquisitions and organic demand. Operating margins are expected to remain stable or improve slightly. For the Aerospace Systems segment, sales are expected to be flat to slightly increasing, with operating margins projected to remain strong, though potential pressures from a higher concentration of commercial OEM volume and new product development costs are noted.

Parker-Hannifin aims to maintain an 'A' rating on its senior debt. While certain credit ratings were temporarily below this goal at March 31, 2018, the company believes its ability to borrow funds will not be significantly impacted. The company has a revolving credit facility providing significant availability and actively manages its debt levels, with its debt-to-equity ratio well within covenant requirements.