Parker Hannifin Corporation (PH) F3Q2012 Earnings Call April 24, 2012 10:00 a.m. ET Executives Donald Washkewicz – Chairman, President, Chief Executive Officer Jon Marten – Executive Vice President, Chief Financial Officer Pamela Huggins – Vice President, Treasurer Analysts Andrew Buscaglia– Credit Suisse Alex Blanton – Clear Harbor Asset Management Ingrid Aja – JP Morgan Terry Darling – Goldman Sachs David Raso – ISI Group Eli Lustgarten – Longbow Securities Jeff Hammond – Keybanc Capital Markets Richard Hall– Stifel Nicolaus Steven Volkmann – Jefferies & Co. Jeff Sprague – Vertical Research Presentation Operator
Slide number three, this slide as required indicates that in cases where non-GAAP numbers have been used, they have been reconciled to the appropriate GAAP numbers and are posted on Parker’s website. To cover the agenda for today on slide number four, the call will be in four parts, first Don Washkewicz, the Chairman, Chief Executive Officer and President will provide the highlights for the quarter. Second, I will provide a review including key performance measures of the third quarter, concluding with a revised 2012 guidance. The third part of the call will consist of our standard Q&A session and for the fourth part of the call today Don will close with some final comments. So at this time I will turn it over to Don and ask that you refer to slide number five titled third quarter fiscal year ’12 highlights.Donald E. Washkewicz Thanks Pam and welcome to everyone on the call. To start the call I will just take a few moments to point out some of the highlights for the quarter. This was obviously a very strong quarter for Parker. We are really excited about it, we delivered a number of records and I will touch on some of those records here as we go forward. We did exceed our guidance that was given last quarter, so we are pretty excited about the results for that quarter. Sales were a third quarter record while net income and diluted earnings per share were all-time records for any quarter in Parker’s history, so a pretty remarkable performance there. Although we did have some benefits on the tax side from some prior year tax filings, our results this quarter definitely reflected strong operating performance in our industrial North America sector, and I will share some of those margins with you in a few moments.
Internationally, our results this quarter did slightly exceed our expectations for soft market conditions in Europe and Asia. International markets appear to have somewhat stabilized. You may recall that when we started our fiscal year, our projections were that the first half was going to be strong and the second half was going to be somewhat weak and it’s exactly how this is rolling out, exactly the way we see it now. We predicted these markets would be soft in our second half and they were soft, and we expect them to be soft throughout our last quarter here, pretty much in line with our original forecast that was given at the beginning of the fiscal year.Substantially, all of our sales growth in the quarter was organic at 5.8%. Currency rather impacted us by 1.3% negative and acquisitions were very minimal at 0.2%. So you can see most of the growth was organic and the majority of that came form from North America and also aerospace. Looking on the orders side, orders increased 2%. We did report that against tough comps while quarter ending backlog was up 5% compared with quarter end backlog a year ago. So our backlog has never been stronger as well. Total company’s segment operating margins were a third quarter record at 15.1. Again you can remember this was our target. We have been trying to get to that 15% and finish the year strong at 15, it looks like we are heading it down that path to have another record year from segment operating margins. Of course that was driven primary by, as I indicated earlier, industrial North America margins and those were 17.3%. We have never achieved that before. Hopefully there is more to come as we look forward on building on that record as well. Year-to-date, our operating cash flow remains strong at 10.3% of sales and exceeded $1 billion. For the quarter operating cash was $443 million or 13.1% of sales, and I might add that this is the highest amount of operating cash in any quarter since fiscal 2008. So really doing a very good job in spite of the fact that some of the regions around the world are soft, the company still performs very, very strong.
Our usage for cash will be to continue our dividend increase record and make accretive acquisitions similar to what we have done recently and opportunistically repurchase Parker shares. Our board recently authorized us to repurchase up to 16 million additional shares during the remainder of this fiscal year.Today, we announced another 5% increase in our dividend as we now enter our 56th consecutive fiscal year of increased annual dividend payouts and currently Parker’s yield is approximately 2%, and there is only four or five companies that can match that record. Read the rest of this transcript for free on seekingalpha.com