Why did reported EPS and adjusted EPS grow at different rates?

Reported diluted EPS rose 7% to $5.34, while adjusted EPS rose 4% to $6.20. The adjusted figure excludes items such as acquired intangible asset amortization ($1.07 per share this quarter, versus $1.19 a year earlier), business realignment charges, integration costs, and a $0.08 gain on sale of a building. The lower amortization in the current quarter helped reported EPS more than adjusted EPS, which is the reason the two growth rates differ.

Why is Diversified Industrial declining while Aerospace is growing so quickly?

Aerospace Systems benefits from strong aftermarket demand in both commercial and defense markets, along with order growth of 7%. Diversified Industrial faces softness in transportation and off-highway markets, project and capital spending delays in in-plant and energy end markets, and OEM destocking. Management still expects North America Diversified Industrial to see some near-term pressure, while HVAC has returned to growth.

What is the divestiture that affects the guidance?

The updated guidance reflects an expected divestiture of certain North America Diversified Industrial businesses, anticipated to close in the second quarter of fiscal 2025. It is expected to reduce reported sales growth by about 1.5% for the full year and to reduce North America Diversified Industrial sales by roughly 3.5%. The filing does not name the divested businesses or disclose the transaction price in this document.

Is the company's balance sheet and cash generation healthy?

Yes, based on the figures reported. Operating cash flow was $744 million and free cash flow was $649 million in the quarter. Net debt to TTM adjusted EBITDA was 1.9x. Total debt fell year over year in the cash flow statement, with $409 million of net debt payments in the quarter. Full-year free cash flow is guided to $3.0 billion to $3.3 billion, with capital expenditures around 2% of sales.

Are the company's fiscal 2029 targets still intact?

Management said it remains committed to its fiscal 2029 targets and sees a promising future, citing the strength of its transformed portfolio and Aerospace momentum. The filing does not restate the specific targets, so investors should refer to prior investor materials for the exact metrics.

PH 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed October 31, 2024. Cited figures are marked; the original filing is the authoritative source.

Parker-Hannifin reported fiscal 2025 first quarter results (quarter ended September 30, 2024) with record adjusted segment operating margin and record adjusted EPS, and raised its full-year earnings outlook.

Reported net sales rose 1.2% to $4.90 billion^a, with organic growth of 1.4%. Diluted EPS was $5.34 (up 7%), and adjusted EPS was $6.20 (up 4%). Reported segment operating margin was 22.6% (up 130 bps), and adjusted segment operating margin reached a record 25.7% (up 80 bps).

Cash flow from operations rose 14% to $744 million^b, or 15.2% of sales. The quarter's story is divergence across segments. Aerospace Systems was the standout, with sales up 17.8% (17.2% organic), adjusted segment margin of 27.9%, and order growth of 7%, driven by strong aftermarket sales in both commercial and defense markets.

Diversified Industrial was weaker: North America sales fell 5.8%^c (5.0% organic) with orders down 3%, reflecting softness in transportation and off-highway markets and project delays in in-plant and energy, while International sales fell 2.4% with Europe weak and Asia positive. Management noted near-term pressure in select industrial markets. Full-year fiscal 2025 guidance was updated.

Reported sales growth is now expected at 0.5% to 3.5% (organic 1.5% to 4.5%), reflecting an expected divestiture in North America Diversified Industrial of roughly 1.5% of sales. Adjusted segment margin is guided to about 25.7%, and reported EPS to $22.78 to $23.48^d (adjusted $26.35 to $27.05), with free cash flow of $3.0 billion to $3.3 billion. Management reiterated its fiscal 2029 targets.

02—Key points

Key Highlights

Record adjusted segment operating margin of 25.7% (up 80 bps) and record adjusted EPS of $6.20 (up 4%), with reported diluted EPS of $5.34 (up 7%)
Net sales of $4.90 billion, up 1.2% reported and 1.4% organic; Aerospace Systems sales surged 17.8% while Diversified Industrial sales fell 4.5%
Aerospace Systems adjusted segment margin reached a record 27.9% (up 190 bps), with orders up 7% and strong commercial and defense aftermarket growth
Diversified Industrial North America sales declined 5.8% with orders down 3%, reflecting transportation and off-highway softness and in-plant and energy project delays
Cash flow from operations rose 14% to $744 million (15.2% of sales), and free cash flow grew 17% to $649 million
Fiscal 2025 EPS guidance raised: adjusted EPS now $26.35 to $27.05 (reported $22.78 to $23.48), with an expected North America divestiture reducing reported sales growth by about 1.5%
Net debt to TTM adjusted EBITDA improved to 1.9x, and shareholders' equity rose to $12.9 billion from $12.1 billion at June 30, 2024

03—Questions

Frequently Asked Questions

Why did reported EPS and adjusted EPS grow at different rates?
Reported diluted EPS rose 7% to $5.34, while adjusted EPS rose 4% to $6.20. The adjusted figure excludes items such as acquired intangible asset amortization ($1.07 per share this quarter, versus $1.19 a year earlier), business realignment charges, integration costs, and a $0.08 gain on sale of a building. The lower amortization in the current quarter helped reported EPS more than adjusted EPS, which is the reason the two growth rates differ.
Why is Diversified Industrial declining while Aerospace is growing so quickly?
Aerospace Systems benefits from strong aftermarket demand in both commercial and defense markets, along with order growth of 7%. Diversified Industrial faces softness in transportation and off-highway markets, project and capital spending delays in in-plant and energy end markets, and OEM destocking. Management still expects North America Diversified Industrial to see some near-term pressure, while HVAC has returned to growth.
What is the divestiture that affects the guidance?
The updated guidance reflects an expected divestiture of certain North America Diversified Industrial businesses, anticipated to close in the second quarter of fiscal 2025. It is expected to reduce reported sales growth by about 1.5% for the full year and to reduce North America Diversified Industrial sales by roughly 3.5%. The filing does not name the divested businesses or disclose the transaction price in this document.
Is the company's balance sheet and cash generation healthy?
Yes, based on the figures reported. Operating cash flow was $744 million and free cash flow was $649 million in the quarter. Net debt to TTM adjusted EBITDA was 1.9x. Total debt fell year over year in the cash flow statement, with $409 million of net debt payments in the quarter. Full-year free cash flow is guided to $3.0 billion to $3.3 billion, with capital expenditures around 2% of sales.
Are the company's fiscal 2029 targets still intact?
Management said it remains committed to its fiscal 2029 targets and sees a promising future, citing the strength of its transformed portfolio and Aerospace momentum. The filing does not restate the specific targets, so investors should refer to prior investor materials for the exact metrics.

04—Continue

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