Parker Hannifin's CEO Discusses F3Q2012 Results - Earnings Call Transcript

Parker Hannifin Corporation (PH)

F3Q2012 Earnings Call

April 24, 2012 10:00 a.m. ET


Donald Washkewicz – Chairman, President, Chief Executive Officer

Jon Marten – Executive Vice President, Chief Financial Officer

Pamela Huggins – Vice President, Treasurer


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



Good day ladies and gentlemen, and welcome to the Third Quarter2012 Parker Hannifin Corporation earnings conference call. My name is Lisa and I will be your operator for today. At this time, all participants are in listen only mode. [Operator Instructions]. I would now like to turn the conference over the call over to your host for today, Ms. Pamela Huggins, Vice President and treasurer. Please proceed.

Pamela J. Huggins

Thank you Lisa. Good morning everyone. It’s Pam speaking. Just as Lisa just said I would like to welcome you to Parker Hannifin’s third quarter fiscal year 2012 earnings release teleconference. Joining me today is Chairman, Chief Executive Officer and President Don Washkewicz and Executive Vice President and Chief Financial Officer, Jon Marten.

For those of you who do wish to do so, you may follow today’s presentation with the PowerPoint slides that have been presented on Parker’s website at For those of you not online, the slides will remain posted on the company’s investor information website one year after today’s call. At this time I would ask that you reference slide number two in the slide deck, which is the Safe Harbor disclosure statement addressing forward-looking statements, and again, if you haven’t already done so, please take note of this statement in its entirety.

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.

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