Parker-Hannifin Beats on Earnings, Misses Revs - Analyst Blog

Parker-Hannifin Corporation's PH fiscal third quarter 2014 adjusted net income, of $285.0 million or $1.88 per share, exceeded $257.8 million or $1.69 per share recorded in the year-earlier quarter. The year-over-year growth was driven by incremental orders and improved performance by its Industrial Sales business. Reported earnings beat the Zacks Consensus Estimate of $1.61 per share by 16.8%.

Total Revenue

Total revenue in the third quarter increased only 1.6% year over year to $3.36 billion. Weak macroeconomic conditions and modest returns from the American market continued to affect revenues. However, this was almost offset by the strength in Industrial Sales. Revenues fell short of the Zacks Consensus Estimate of $3.39 billion.

Segment Performance

Parker's Industrial Sales segment comprises two sub segments - Industrial North America and Industrial International.

Industrial North America revenues increased 1.9% year over year to $1.46 billion. Operating income also increased 8.3% to $243.0 million in the quarter. The segment reported a 6% year-over-year increase in orders.

Industrial International sales were up 4.4% to $1.36 billion. Operating income, adjusted for restructuring expenses, increased 17.8% year over year to $186.4 million. Orders for the segment grew 5% year over year.

Revenues in the Aerospace segment decreased 5.6% year over year to $545.7 million, despite a healthy 16% increase in orders. The decrease was mainly due to the negative impact of the company's joint venture business with GE Aviation. Adjusting for that impact, segment sales actually increased 2% year over year.

Operating income declined 20.1% to $64.0 million, due to an adverse product mix.

Balance Sheet

At the end of the quarter, Parker's cash and cash equivalents were $2.1 billion, compared with $1.7 billion a year ago. The company's long-term debt stood at $1.5 billion at quarter end.

Further, net cash from operating activities for the nine months ended Mar 31, 2014 improved 13.7% year over year to $817.5 million on higher net income and asset impairment. Capital expenditures for the same period were $167.4 million.

Guidance for Fiscal 2014

The company increased its fiscal 2014 guidance. Earnings from continuing operations for fiscal 2014 are expected in the range of $6.40 to $6.60 per share, up from the earlier projection of $6.20 to $6.60. The guidance includes restructuring expenses of 55 cents per share, but excludes gains connected to a joint venture between Parker Aerospace and GE Aviation and asset write-downs recorded in the previous quarter.

The improved guidance seems to have emanated from healthier operating margins and improved order trends, driven by strong diversified industrial operations. However, the aerospace segment continues to be drag on profitability.

Parker's shares carry a Zacks Rank #4 (Sell), so it may not be an ideal investment option right now. However, you may consider better-ranked stocks such as Middleby Corp. MIDD, Gorman-Rupp Co. GRC and Broadwind Energy, Inc. BWEN. While Gorman-Rupp and Middleby sport a Zacks Rank #1 (Strong Buy), Broadwind Energy carry a Zacks Rank #2.