Market Overview

Parker Reports Fiscal 2018 Fourth Quarter and Full Year Results

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  • Fourth quarter sales increased 9% to an all-time quarterly record of $3.82 billion
  • Demand remained strong with fourth quarter organic growth of 9% and order rates increased 8%
  • Fourth quarter total segment operating margins a record at 16.9% as reported, 17.5% adjusted
  • Fourth quarter EPS increased 22% to $2.62, or an increase of 31% to $3.22, on an adjusted basis
  • Fourth quarter EBITDA margins increased 100 bps to 17.4%, or 18.8% on an adjusted basis
  • Full year operating cash flow reached a record $1.6 billion or 11.2% of sales
  • Fiscal 2019 full year guidance anticipates another record year for sales and operating margins

CLEVELAND, Aug. 02, 2018 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today reported results for the fiscal 2018 fourth quarter and full year ended June 30, 2018.  Fiscal 2018 fourth quarter sales increased 9% to $3.82 billion compared with $3.50 billion in the prior year quarter.  Net income increased 20% to $353.3 million compared with $293.4 million in the prior year quarter.  Fiscal 2018 fourth quarter earnings per share increased 22% to $2.62, compared with $2.15 in the fiscal 2017 fourth quarter.  On an adjusted basis, earnings per share increased 31% to $3.22, compared with $2.45 in the prior year quarter.  A reconciliation of non-GAAP measures is included in the financial tables of this press release. 

For the full year, fiscal 2018 sales were $14.3 billion, a 19% increase compared with $12.0 billion in fiscal year 2017.  Net income was $1,061.3 million, an 8% increase compared with $983.8 million in fiscal 2017.  Earnings per share increased 8% to $7.83 compared with $7.25 per share in the prior year.  Adjusted earnings per share increased 28% to $10.42 compared with $8.11 per share in fiscal 2017.  

Cash flow from operations for fiscal year 2018 was $1.6 billion or 11.2% of sales, compared with $1.3 billion or 10.8% of sales in the prior year period.  Excluding a discretionary pension contribution, fiscal 2017 full year cash flow from operations was 12.7% of sales.  Free cash flow conversion in fiscal year 2018 was 127%.  During the fourth quarter of fiscal 2018, the company's significant uses of cash included debt repayment of $925 million, a quarterly dividend payment of $100 million and the repurchase of $150 million in Parker shares.

"We ended fiscal 2018 by achieving a number of records in the quarter, which contributed to Parker delivering the strongest year of financial performance in the company's history," said Chairman and Chief Executive Officer, Tom Williams.  "Sales were a record in the fourth quarter with organic growth of 9%, more than double the rate of growth for global industrial production.  Order rates also increased 8%, indicating continued strong market demand.  Total segment operating margins reached a record 16.9%, or 17.5% adjusted, with strong performance across all operating segments, and EBITDA margins increased to 17.4% or 18.8% adjusted.

"For the year, Parker achieved records in sales, segment operating margins, earnings per share and cash flow from operations.  We deployed cash efficiently to pay down debt, maintain our dividend increase record and repurchase shares.  Fiscal 2018 demonstrates the success of the Win Strategy™ and reflects the engagement and dedication of our global team members."

Fiscal 2018 Fourth Quarter Segment Results
Diversified Industrial Segment: North American fourth quarter sales increased 8% to $1.8 billion, and operating income increased 20% to $313.5 million compared with $261.5 million in the same period a year ago.  International fourth quarter sales increased 12% to $1.4 billion, and operating income increased 26% to $203.3 million compared with $161.5 million in the same period a year ago.

Aerospace Systems Segment: Fourth quarter sales increased 6% to $636.4 million, compared with $602.8 million in the prior year period, and operating income increased 13% to $126.7 million compared with $111.7 million in the same period a year ago.

Parker reported the following orders for the quarter ending June 30, 2018, compared with the same quarter a year ago:

  • Orders increased 8% for total Parker
  • Orders increased 9% in the Diversified Industrial North America businesses
  • Orders increased 5% in the Diversified Industrial International businesses
  • Orders increased 10% in the Aerospace Systems Segment on a rolling 12-month average basis

Outlook
For the fiscal year ending June 30, 2019, the company has issued guidance for earnings from continuing operations in the range of $10.50 to $11.30 per share, or $10.70 to $11.50 per share on an adjusted basis.  Fiscal year 2019 guidance is adjusted on a pre-tax basis for expected business realignment expenses of approximately $22 million and CLARCOR costs to achieve of approximately $13 million.  Guidance assumes organic sales growth in the range of 2.3% to 5.1%.

Williams added, "Fiscal 2019 will see us make continued progress toward achieving our new five-year financial targets that will maintain Parker's position among the best performing diversified industrial companies and generate significant long-term value for our shareholders.  While we have made meaningful progress, we have the opportunity to drive further improvement by building upon our strong financial position and distinct competitive advantages."

NOTICE OF CONFERENCE CALL:  Parker Hannifin's conference call and slide presentation to discuss its fiscal 2018 fourth quarter and full year results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at www.phstock.com.  To access the call, click on the "Live Webcast" link.  From this link, users also may complete a pre-call system test.  A replay of the webcast will be accessible on Parker's investor relations website, www.phstock.com, approximately one hour after the completion of the call, and will remain available for one year.  To register for e-mail notification of future events and information available from Parker please visit www.phstock.com.

Parker Hannifin is a Fortune 250 global leader in motion and control technologies.  For more than 100 years the company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.  Parker has increased its annual dividend per share paid to shareholders for 62 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index.  Learn more at www.parker.com or @parkerhannifin.

Note on Orders
Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly % change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems Segment.

Note on Non-GAAP Numbers
This press release contains references to (a) earnings per share and segment operating margins without the effect of business realignment charges, CLARCOR costs to achieve, U.S. Tax Cuts and Jobs Act adjustments, the net loss on sale and writedown of assets, and acquisition-related expenses; (b) the effect of business realignment charges, CLARCOR costs to achieve on forecasted earnings from continuing operations per share; (c) and cash flows from operations without the effect of a discretionary pension contribution. The effects of business realignment charges, CLARCOR costs to achieve, U.S. Tax Reform adjustments, the net loss on sale and writedown of assets, acquisition-related expenses and a discretionary pension contribution are removed to allow investors and the company to meaningfully evaluate changes in earnings per share, segment operating margins and cash flows from operations on a comparable basis from period to period. This press release also contains references to EBITDA and adjusted EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before business realignment charges, CLARCOR costs to achieve, the loss on sale and writedown of assets and acquisition-related expenses. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP, we believe that it is useful to an investor in evaluating the results of this quarter and full year versus the prior periods. 

Forward-Looking Statements
Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. These statements may be identified from the use of forward-looking terminology such as "anticipates," "believes," "may," "should," "could," "potential," "continues," "plans," "forecasts," "estimates," "projects," "predicts," "would," "intends," "anticipates," "expects," "targets," "is likely," "will," or the negative of these terms and similar expressions, and include all statements regarding future performance, earnings projections, events or developments. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance.

Among other factors which may affect future performance and earnings projections are: economic conditions within the company's key markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. Additionally, the actual impact of the U.S. Tax Cuts and Jobs Act may affect future performance and earnings projections as the amounts reflected in this period are preliminary estimates and exact amounts will not be determined until a later date, and there may be other judicial or regulatory interpretations of the U.S. Tax Cuts and Jobs Act that may also affect these estimates and the actual impact on the company. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance of the company are, as applicable: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments; disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of CLARCOR; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; global competitive market conditions, including global reactions to U.S. trade policies, and resulting effects on sales and pricing; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.

                 
PARKER HANNIFIN CORPORATION - JUNE 30, 2018
CONSOLIDATED STATEMENT OF INCOME
                       
          Three Months Ended June 30,   Twelve Months Ended June 30,
(Dollars in thousands except per share amounts)    2018       2017       2018       2017  
                       
Net sales       $    3,817,477     $ 3,496,238     $    14,302,392     $ 12,029,312  
Cost of sales         2,835,885       2,654,682         10,762,841       9,188,962  
Selling, general and administrative expenses      422,423       402,352         1,657,152       1,453,935  
Interest expense         53,040       52,787         213,873       162,436  
Other expense (income), net      8,202       (14,194 )       (33,751 )     (104,662 )
Income before income taxes         497,927       400,611         1,702,277       1,328,641  
Income taxes         144,599       107,252         640,962       344,797  
Net income           353,328       293,359         1,061,315       983,844  
Less:  Noncontrolling interests      72       54         514       432  
Net income attributable to common shareholders $    353,256     $ 293,305     $    1,060,801     $ 983,412  
                       
Earnings per share attributable to common shareholders:              
Basic earnings per share  $    2.66     $ 2.20     $    7.98     $ 7.37  
Diluted earnings per share  $    2.62     $ 2.15     $    7.83     $ 7.25  
                       
Average shares outstanding during period - Basic      132,696,489       133,278,324         133,004,613       133,377,547  
Average shares outstanding during period - Diluted      135,001,851       136,154,741         135,426,834       135,559,764  
                       
Cash dividends per common share   $ .76     $ .66     $    2.74     $ 2.58  
                       
                       
                       
RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE
(Unaudited)       Three Months Ended June 30,   Twelve Months Ended June 30,
(Amounts in dollars)    2018       2017       2018       2017  
Earnings per diluted share  $    2.62     $ 2.15     $    7.83     $ 7.25  
Adjustments:                  
Business realignment charges      0.10       0.11         0.26       0.30  
Clarcor costs to achieve      0.04       -         0.20       -  
Net loss on sale and writedown of assets      0.39       -         0.41       -  
U.S. Tax Reform one-time impact, net      0.07       -         1.72       -  
Acquisition-related expenses      -        0.19         -        0.56  
Adjusted earnings per diluted share  $    3.22     $ 2.45     $    10.42     $ 8.11  
                       
                       
RECONCILIATION OF EBITDA TO ADJUSTED EBITDA 
(Unaudited)  Three Months Ended June 30,        
(Dollars in thousands)    2018       2017          
                       
Net sales       $    3,817,477     $ 3,496,238          
                       
Earnings before income taxes  $    497,927     $ 400,611          
Depreciation and amortization      114,769       118,686          
Interest expense      53,040       52,787          
EBITDA           665,736       572,084          
Adjustments:                       
Business realignment charges      17,843       21,437          
Clarcor costs to achieve      8,292       -          
Loss on sale and writedown of assets      26,513       -          
Acquisition-related expenses      -       36,303          
Adjusted EBITDA      $    718,384     $ 629,824          
                       
EBITDA margin       17.4 %     16.4 %        
Adjusted EBITDA margin        18.8 %     18.0 %        
                       
                       
BUSINESS SEGMENT INFORMATION
          Three Months Ended June 30,   Twelve Months Ended June 30,
(Dollars in thousands)    2018       2017       2018       2017  
Net sales               
Diversified Industrial:               
North America  $    1,804,948     $ 1,665,483     $    6,726,900     $ 5,366,809  
International      1,376,118       1,227,999         5,259,793       4,377,776  
Aerospace Systems      636,411       602,756         2,315,699       2,284,727  
Total       $    3,817,477     $ 3,496,238     $    14,302,392     $ 12,029,312  
Segment operating income                  
                       
Diversified Industrial:               
North America  $    313,493     $ 261,509     $    1,076,021     $ 873,552  
International      203,340       161,499         765,188       579,207  
Aerospace Systems      126,735       111,732         397,970       337,496  
Total segment operating income      643,568       534,740         2,239,179       1,790,255  
Corporate general and administrative expenses      58,471       51,925         200,901       172,632  
Income before interest and other expense      585,097       482,815         2,038,278       1,617,623  
Interest expense      53,040       52,787         213,873       162,436  
Other expense      34,130       29,417         122,128       126,546  
Income before income taxes  $    497,927     $ 400,611     $    1,702,277     $ 1,328,641  
                       
                       
RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN
                       
(Unaudited)        Three Months Ended    Three Months Ended
(Dollars in thousands)
    June 30, 2018   June 30, 2017
          Operating income    Operating margin    Operating income   Operating margin
Total segment operating income   $   643,568       16.9 %   $ 534,740       15.3 %
Adjustments:               
Business realignment charges      17,843           20,653      
Clarcor costs to achieve      8,292           -      
Acquisition-related expenses      -           32,182      
Adjusted total segment operating income  $    669,703       17.5 %   $ 587,575       16.8 %
                       
                       
CONSOLIDATED BALANCE SHEET               
             June 30,       June 30,          
(Dollars in thousands)    2018       2017          
Assets                 
Current assets:               
Cash and cash equivalents  $    822,137     $ 884,886          
Marketable securities and other investments      32,995       39,318          
Trade accounts receivable, net      2,145,517       1,930,751          
Non-trade and notes receivable      328,399       254,987          
Inventories      1,621,304       1,549,494          
Prepaid expenses      134,886       120,282          
Total current assets      5,085,238       4,779,718          
Plant and equipment, net      1,856,237       1,937,292          
Deferred income taxes      57,623       36,057          
Goodwill      5,504,420       5,586,878          
Intangible assets, net      2,015,520       2,307,484          
Other assets      801,049       842,475          
Total assets  $    15,320,087     $ 15,489,904          
                       
Liabilities and equity
             
Current liabilities:               
Notes payable  $    638,466     $ 1,008,465          
Accounts payable      1,430,306       1,300,496          
Accrued liabilities      929,833       933,762          
Accrued domestic and foreign taxes      198,878       153,137          
Total current liabilities      3,197,483       3,395,860          
Long-term debt      4,318,559       4,861,895          
Pensions and other postretirement benefits      1,177,605       1,406,082          
Deferred income taxes      234,858       221,790          
Other liabilities      526,089       336,931          
Shareholders' equity      5,859,866       5,261,649          
Noncontrolling interests      5,627       5,697          
Total liabilities and equity  $    15,320,087     $ 15,489,904          
                       
                       
CONSOLIDATED STATEMENT OF CASH FLOWS         
          Twelve Months Ended June 30,        
(Dollars in thousands)    2018       2017          
                       
Cash flows from operating activities:               
Net income  $    1,061,315     $ 983,844          
Depreciation and amortization      466,085       355,229          
Stock incentive plan compensation      118,831       80,339          
Loss (gain) on sale of businesses      19,666       (41,285 )        
(Gain) loss on disposal of assets      (24,422 )     1,494          
(Gain) on sale of marketable securities      (2 )     (1,032 )        
Loss on sale and impairment of investments      33,759       -          
Net change in receivables, inventories and trade payables     (268,280 )     5,741          
Net change in other assets and liabilities      227,463       (126,943 )        
Other, net      (34,128 )     45,084          
Net cash provided by operating activities      1,600,287       1,302,471          
Cash flows from investing activities:               
Acquisitions (net of cash of $157,426 in 2017)      -       (4,069,197 )        
Capital expenditures      (247,667 )     (203,748 )        
Proceeds from sale of plant and equipment      81,881       14,648          
Proceeds from sale of businesses      177,741       85,610          
Purchases of marketable securities and other investments     (80,607 )     (465,666 )        
Maturities and sales of marketable securities and other investments     83,905       1,279,318          
Other, net      4,837       (6,113 )        
Net cash provided by (used in) investing activities     20,090       (3,365,148 )        
Cash flows from financing activities:               
Net payments for common stock activity      (377,359 )     (335,876 )        
Net (payments for) proceeds from debt      (939,325 )     2,463,884          
Dividends      (365,288 )     (345,380 )        
Net cash (used in) provided by financing activities     (1,681,972 )     1,782,628          
Effect of exchange rate changes on cash      (1,154 )     (56,718 )        
Net (decrease) in cash and cash equivalents      (62,749 )     (336,767 )        
Cash and cash equivalents at beginning of period      884,886       1,221,653          
Cash and cash equivalents at end of period  $    822,137     $ 884,886          
                       
                       
                       
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO ADJUSTED CASH FLOW FROM OPERATIONS
(Unaudited)                    
(Amounts in thousands) Twelve Months Ended June 30, 2018       Twelve Months Ended June 30, 2017    
               Percent of sales        Percent of sales
As reported cash flow from operations  $    1,600,287       11.2 %   $ 1,302,471       10.8 %
Discretionary pension contribution
    -           220,000      
Adjusted cash flow from operations  $    1,600,287       11.2 %   $ 1,522,471       12.7 %
                       
                       
CALCULATION OF FREE CASH FLOW CONVERSION
(Unaudited)                    
          Twelve Months Ended June 30, 2018            
Net income
$    1,061,315              
                       
Cash flow from operations
    1,600,287              
Capital expenditures
    (247,667 )            
Free cash flow
$    1,352,620              
Free cash flow conversion (free cash flow/net income)   127 %            
                       
                       
RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE 
(Unaudited)                    
(Amounts in dollars)     Fiscal Year            
            2019              
Forecasted earnings per diluted share  $10.50 - $11.30             
Adjustments:                  
Business realignment charges
  0.13              
Clarcor costs to achieve
  0.07              
Adjusted forecasted earnings per diluted share
$10.70 - $11.50             
               

 

Contact:   Media –
    Aidan Gormley, Director, Global Communications and Branding                            216/896-3258
    aidan.gormley@parker.com
     
    Financial Analysts –
    Robin J. Davenport, Vice President, Corporate Finance                                         216/896-2265
    rjdavenport@parker.com

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