Parker-Hannifin (PH) Q1 Earnings & Sales Beat, View Raised – November 3, 2017

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Parker-Hannifin Corporation (PH Free Report) kept its impressive streak of beating estimates alive for the ninth consecutive quarter, as the company’s first-quarter fiscal 2018 adjusted earnings of $2.24 per share trumped the Zacks Consensus Estimate of $2.02 by 10.9%.

The earnings figure was even more impressive on a year-over-year basis, reflecting impressive growth of 40%. The bottom-line improvement came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.

Inside the Headlines

Net sales in the fiscal first quarter jumped 23% year over year to a record first-quarter level of $3,365 million, and also crushed the Zacks Consensus Estimate of $3,307 million. Contribution from the CLARCOR acquisition and continued excellent performance in the company’s Diversified Industrial segment were major growth drivers. Organic sales increased 7% year over year, while new acquisitions contributed 13.9% to the top line.

Parker-Hannifin’s adjusted total segment operating income for the reported quarter was $539.3 million, up 27.8% from the year-ago tally of $421.8 million. Orders also increased 11% in aggregate for the company.The company witnessed order growth for the fifth consecutive quarter, mirroring improving demand in the key end markets and regions.

Segmental Performance

At the Diversified Industrial segment, North American sales for the quarter climbed 37% to $1,595 million, continuing its striking momentum. Additionally, this segment recorded 10% growth in orders on a year-over-year basis.

Industrial International, which is also classified under the Diversified Industrial segment, performed strongly as well, as it reported a 22% year-over-year jump in sales to $1,239 million. In addition to robust sales growth, orders at this segment also increased 15% on a year-over-year basis.

Revenues at the Aerospace Systems segment declined 5.3% year over year to $531.2 million. Orders grew 4% at this segment on a rolling 12-month average basis.

In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well.Adjusted segment operating margins during the reported quarter came in at 16%, expanding 60 basis points year over year. In addition to accelerated revenue growth, successful execution of the company’s Win Strategy initiatives drove margins.

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

 

Liquidity

As of Sep 30, 2017, Parker-Hannifin’s cash and cash equivalents were $874.8 million, down significantly from $1,393.9 million on Sep 30, 2016. Long-term debt was $4,788.1 million at year end, substantially higher than $2,653 million recorded at the same time last year.

Acquisitions

In third-quarter fiscal 2017, Parker-Hannifin completed its most notable acquisition agreement to buy air filtration systems provider — CLARCOR Inc. — for roughly $4.3 billion in cash. CLARCOR will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Group as 80% of CLARCOR’s revenues are generated through aftermarket sales. The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales at this unit and optimize the aftermarket mix of Parker-Hannifin.

Further, on Feb 1, 2017, Parker-Hannifin announced the acquisition of Helac Corporation, which specializes in the design and manufacture of helical rotary actuators. Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.

The company is currently integrating these two filtration units into its businesses. We believe these acquisitions will unlock, significant synergies, and drive growth for the company in the times to come.

Guidance

Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2018. Adjusted earnings from continuing operations are now projected to come in the range of $9.10-$9.70 per share (previous projection: $8.45-$9.15). This guidance is adjusted for expected business realignment expenses of approximately $58 million,reported loss on investment of approximately $14 million, and CLARCOR acquisition-related expenses of $52 million.

To Conclude

Parker-Hannifin’s started fiscal 2018 on an outstanding note. The company’s overarching Win Strategy has proven to be a tried and tested growth driver for its key financials. Furthermore, the company’s diligent global restructuring initiatives are proving conducive to profitability. These initiatives helped Parker-Hannifin offset weakness in some vital regions and in the Aerospace Systems segment as well, thus strengthening the company’s position in the end markets.

Buoyed by the competency of the revamped Win Strategy and its strategic acquisitions, Parker-Hannifin is bullish about delivering its fundamental financial goals. The company has made impressive progress in key areas, including safety performance, customer experience, and profitable growth, and believes these initiatives will unlock further growth opportunities.

Encouragingly, this company has been witnessing broad-based improvements in many of its end markets and regions, indicating brighter prospects going forward in fiscal 2018.

Zacks Rank & Stocks to Consider

Parker-Hannifin carries a Zacks Rank #3 (Hold), at present.

Some better-ranked stocks in the broader space include Atlas Copco AB (ATLKY Free Report) , IDEX Corporation (IEX Free Report) and Altra Industrial Motion Corp. (AIMC Free Report) , each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlas Copco has a decent earnings surprise history for the trailing four quarters, having beaten estimates twice for an average of 9.9%.

IDEX Corporation has a robust earnings surprise history, with an average beat of 4.4% over the trailing four quarters, beating estimates each time.

Altra Industrial generated four strong beats during the same time frame, for an average positive surprise of 17.3%.

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