On May 29, 2014, we issued an updated research report on
). The company reported a modest financial performance for the
third quarter of fiscal 2014 with earnings per share increasing
11.2% year over year.
Revenues also rose 1.6%. However, increased costs for ongoing
restructuring activities and the higher price for raw materials
continue to be a drag on the company's profitability. Nevertheless,
the strong cash flow generation capability and a strong balance
sheet are its strengths. In addition, the company offers good
dividend hikes and its industrial sales business has been
performing well since the last quarter.
The company's primary strength is its Win Strategy that includes
dividend increase and other growth actions to measure customer
service excellence through efficient business and cash management
strategies. Since the company launched this strategy, it has been
delivering cash flow greater than 10% every year.
Moreover, Parker-Hannifin has a healthy capital structure that
allows it to make strategic acquisitions that are expected to be a
good contributor to its revenue stream going forward. During the
first quarter of 2014, acquisitions accounted for more than 2%
increase in the revenues. Also, since the beginning of this fiscal,
the company has paid $207 million as dividends. Moreover, in the
year-to-date timeframe, the company has already repurchased shares
worth $150 million as a part of its plan.
However, the company has been affected by the increase in prices
for core materials like castings, steel, aluminum, copper and
nickel among others in the quarter. Such increases can
significantly weigh on the company's profits and margins.
Another, headwind for the company is the increasing cost of the
ongoing restructuring activities that are proving to be a drag on
it's financials as the benefits can only be received in the long
run. Parker-Hannifin now expects the restructuring costs to be
about $118 million or 55 cents per share for this year. This is an
increase from the earlier projected value of $100 million for the
period. However, the new figure includes the impact of some new
initiatives that the company decided to undertake
Despite these headwinds, the company provided an encouraging
outlook by increasing its guidance for fiscal 2014. 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 a drag
Parker-Hannifin currently carries a Zacks Rank #3 (Hold).
However, some better-ranked stocks that can be considered include
Atlas Copco AB
Blount International Inc
). While Gorman-Rupp sports a Zacks Rank #1 (Strong Buy), Atlas
Copco AB and Blount International both carry a Zacks Rank #2
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