10-QPeriod: Q1 FY2019

Parker-Hannifin Corp Quarterly Report for Q1 Ended Sep 30, 2018

Filed November 7, 2018For Securities:PH

Summary

Parker-Hannifin Corporation (PH) reported a strong first quarter for fiscal year 2019, with net sales increasing by 3.4% to $3.48 billion compared to the prior year period. This growth was primarily driven by solid performance in the Diversified Industrial Segment, particularly in North America, and a significant rebound in the Aerospace Systems Segment. Net income attributable to common shareholders saw a substantial increase of 31.6%, reaching $375.7 million, or $2.79 per diluted share. This improvement reflects higher sales, improved gross margins driven by operational efficiencies and favorable product mix in the aerospace segment, and a lower effective tax rate due to the Tax Cuts and Jobs Act. The company also demonstrated effective cost management, with selling, general and administrative expenses as a percentage of sales decreasing. Financially, Parker-Hannifin maintained a healthy balance sheet with increased cash and cash equivalents and a solid working capital position. The company also continued its commitment to shareholder returns through share repurchases and dividend payments. Management's outlook remains positive, supported by favorable economic indicators in key markets and strategic initiatives aimed at driving profitable growth and operational excellence.

Financial Highlights

56 data points
Beta

Revenue

$3.48B

25.4% Gross Margin

Net Income

$375.71M

10.8% Net Margin

EPS (Diluted)

$2.79

Total Assets

$15.43B

Cash & Equivalents

$952.12M

Free Cash Flow

$117.28M

Financial Statements
Beta
Revenue$3.48B
Cost of Revenue$2.59B
Gross Profit$884.47M
SG&A Expenses$394.32M
Operating Income$540.74M
Interest Expense$44.34M
Net Income$375.71M
EPS (Basic)$2.84
EPS (Diluted)$2.79
Shares Outstanding (Basic)132.36M
Shares Outstanding (Diluted)134.66M

Key Highlights

  • 1Net sales increased by 3.4% to $3.48 billion for the three months ended September 30, 2018, compared to the same period in the prior year.
  • 2Net income attributable to common shareholders rose significantly by 31.6% to $375.7 million.
  • 3Diluted earnings per share (EPS) increased to $2.79 from $2.10 in the prior year quarter, a 32.9% increase.
  • 4The Diversified Industrial Segment saw a 2.9% increase in net sales, driven by North America, while the Aerospace Systems Segment reported a 6.3% increase.
  • 5Gross profit margin improved to 25.4% from 25.0% due to higher margins in the Aerospace Systems Segment.
  • 6The effective tax rate decreased to 18.2% from 23.7%, largely attributed to the U.S. Tax Cuts and Jobs Act.
  • 7The company made a significant discretionary cash contribution of $200 million to its domestic qualified defined benefit plan during the quarter.

Frequently Asked Questions

Revenue growth was primarily driven by higher sales in Parker-Hannifin's Diversified Industrial Segment, particularly in North America, and a strong performance in the Aerospace Systems Segment, which benefited from increased volume in both commercial and military OEM and aftermarket businesses.

The TCJA resulted in a lower effective tax rate for the quarter (18.2% vs. 23.7% in the prior year), which significantly boosted net income. The company is still in the process of fully accounting for the tax effects of the TCJA, with provisional amounts recorded for deferred tax balances and a one-time transition tax.

While this report focuses on the first quarter, management indicated positive outlooks for its segments. Diversified Industrial North American sales are expected to increase between 2.6% and 5.6% for fiscal 2019, while International sales are projected to decrease slightly between 3.7% and 0.7%. The Aerospace Systems Segment anticipates sales to increase between 3.6% and 5.6% for fiscal 2019.

During the quarter, Parker-Hannifin made a discretionary cash contribution of $200 million to its domestic qualified defined benefit plan. This contributed to a decrease in cash flow from operating activities compared to the prior year, but the company views it as a strategic financial move.