Skip to content
AnalystLens

Parker-Hannifin Corp 8-K Report, Financial Results (Feb 1, 2024)

Reports
Earnings & Results·Exhibits & Filings
Filing Date
Filed February 1, 2024
Period End
February 1, 2024
Security
PH
In the record · 2016–202610-K1110-Q328-K110

PH filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 110 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Sep ’19Sep ’19
  2. Leadership change8-K · Apr ’21Apr ’21
  3. Leadership change8-K · Apr ’23Apr ’23
  4. Deal closed8-K · Aug ’26Aug ’26

01—Abstract

Summary

Summary of the 8-K filed February 1, 2024. Cited figures are marked; the original filing is the authoritative source.

Parker-Hannifin reported fiscal 2024 second-quarter results (quarter ended December 31, 2023) that beat expectations on profitability and raised full-year guidance.

Net sales rose 3% to a record $4.82 billiona, with organic growth of 2.9%. Segment operating margin was 21.1% as reported and a record 24.5% on an adjusted basis, up 300 basis points year over year. Reported diluted EPS was $5.23 (versus $3.04), and adjusted diluted EPS rose 29% to $6.15.

Growth was driven mainly by Aerospace Systems, where sales rose 15%b and adjusted segment margin expanded 590 basis points to 26.5%, helped by Meggitt integration synergies and strong aftermarket demand. Diversified Industrial results were mixed: North America sales declined 1.5% organically and International was roughly flat, with orders down 4% and 5% respectively, reflecting softness in off-highway markets and slow China recovery. Cash generation and deleveraging were strong.

Year-to-date operating cash flow rose 26% to $1.35 billionc, and free cash flow reached $1.15 billion, an 86% conversion of net income. Management used cash to reduce debt by about $400 million in the quarter and says it is on track to reach roughly 2.0x leverage by June 2024. Net debt to adjusted EBITDA fell to 2.3x from 3.4x a year earlier.

Backlog was reported at $10.8 billiond, and cumulative Meggitt synergies were raised to a $200 million target for FY24. Management raised its FY2024 outlook for segment operating margin and EPS. Reported EPS guidance is now $20.00 to $20.60, or $23.90 to $24.50 adjusted, and sales growth is expected at 3% to 5%.

Adjusted segment margin guidance is 24.1% to 24.5%, and free cash flow guidance is $2.8 billion to $3.1 billion. Investors should note that reported results still include large acquisition-related intangible amortization, which creates a meaningful gap between GAAP and adjusted earnings. Management also still carries significant debt, although it is declining.

02—Key points

Key Highlights

  1. Record quarterly net sales of $4.82B (+3%), with organic growth of 2.9%
  2. Adjusted segment operating margin of 24.5%, up 300 bps YoY; reported segment margin of 21.1%
  3. Reported diluted EPS of $5.23 (vs. $3.04); adjusted EPS of $6.15, up 29%
  4. Aerospace Systems sales up 15% with adjusted margin up 590 bps to 26.5%, driven by Meggitt synergies and aftermarket strength
  5. Diversified Industrial weakness: North America orders down 4% and International orders down 5%; North America organic sales down ~1.5%
  6. Strong cash flow: YTD operating cash flow up 26% to $1.35B; free cash flow $1.15B (86% conversion); ~$400M debt reduction in the quarter
  7. FY2024 guidance raised: adjusted EPS $23.90–$24.50 and adjusted segment margin 24.1%–24.5%

03—Questions

Frequently Asked Questions

  1. Why did Parker-Hannifin's reported EPS differ so much from its adjusted EPS?

    The gap is mainly driven by non-cash acquired intangible asset amortization of $142 million in the quarter, which is about $1.09 per diluted share. Other adjustments include business realignment charges (about $0.11 per share), integration costs to achieve Meggitt synergies (about $0.08 per share), and a net gain on divestitures (about $0.10 per share). Investors focused on cash earnings should weigh the adjusted figure, but GAAP EPS is the figure that reflects the full cost base.

  2. What is driving the strength in Aerospace Systems?

    Aerospace sales rose 15% to $1.31 billion. Management cited a 25% increase in commercial aftermarket growth, a favorable aftermarket spares mix, and strong performance from the Meggitt acquisition. Aerospace orders were up 21% on a rolling 12-month basis, and management raised its FY24 aerospace organic growth expectation to about 12%, from 10% previously.

  3. Is Parker's Diversified Industrial business showing weakness?

    Yes, there are signs of softness. North America sales declined about 1.5% organically, and orders fell 4% in North America and 5% in International. Management pointed to softness in off-highway markets, continued channel and OEM destocking, weak EMEA orders, and a slow China recovery. Margins held up well, however, through cost management and operational execution, with adjusted North America margin up 240 bps to 24.2%.

  4. How is Parker's balance sheet and debt position changing?

    Leverage is falling quickly. Net debt to adjusted EBITDA dropped to 2.3x from 3.4x a year earlier, and gross debt to adjusted EBITDA fell to 2.4x from 3.6x. The company reduced debt by about $400 million in the quarter, targets roughly $2 billion of debt paydown in FY24, and expects to reach 2.0x leverage by June 2024. Total debt still stood around $11.9 billion at December 31, 2023, down from about $14.1 billion a year earlier.

  5. What is the outlook for the rest of fiscal 2024?

    Management raised its FY24 guidance. Reported sales growth is expected at 3% to 5% (about 1.5% organic), with reported EPS of $20.00–$20.60 and adjusted EPS of $23.90–$24.50. Adjusted segment margin is expected at 24.1%–24.5%, and free cash flow at $2.8–$3.1 billion with conversion above 100%. The company also reaffirmed a longer-term FY27 target of about $30 adjusted EPS and more than $3.5 billion of free cash flow.

04—Continue

← View all 8-K filings