Parker-Hannifin Corporation (PH)

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Parker Hannifin Corporation (PH)

F1Q09 (Qtr End 09/30/08) Earnings Call

October 16, 2008 10:00 am ET

Executives

Pam Huggins - VP and Treasurer

Don Washkewicz - Chairman, CEO and President

Tim Pistell - EVP and CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Jamie Cook - Credit Suisse

Alex Blanton - Ingalls & Snyder

Henry Kirn - UBS Securities

Mark Koznarek - Cleveland Research

Eli Lustgarten - Longbow Securities

Ann Duignan - JPMorgan

Joel Tiss - Buckingham Research

Terry Darling - Goldman Sachs

Daniel Dowd - Sanford Bernstein

Robert McCarthy - Robert W. Baird

Presentation

Operator

Good day, ladies and gentlemen and welcome to your Q1 2009 Parker Hannifin Corporation Earnings Call. My name is Sandy and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's conference, Ms. Pam Huggins, Vice President and Treasurer. Please proceed.

Pam Huggins

Thank you, Sandy. Good morning, everyone. This is Pam Huggins speaking, as Sandy just mentioned. I would like to welcome you to Parker Hannifin's first quarter fiscal year 2009 earnings release teleconference. Joining me today is Chairman, President and Chief Executive Officer Don Washkewicz; and Executive Vice President and Chief Financial Officer, Tim Pistell.

Before getting into the earnings release, let me address a couple of administrative matters. First for those of you that are online, you can you follow today's presentation with PowerPoint slides that have been presented and for those of you not online, the slides will be posted on the Investor Relations' portion of Parker's website at PhStock.com.

Second, as is customary, I would like to call your attention to slide number two which is the Safe Harbor disclosure on forward-looking statements and ask that you read this statement in its entirety.

Third, moving to slide number three, this slide is required indicates that in cases where non-GAAP numbers have been used they've been reconciled to the appropriate GAAP numbers.

And now moving to slide four, the call will be in four parts today. First Don Washkewicz, Chairman, President, and Chief Executive Officer will provide highlights for the quarter. Second I'll provide a review including key performance measures of the quarter and of course concluding with a revised outlook for fiscal year 2009.

The third part of the call will consist of our standard Q&A and as a reminder please ask one question at a time. My goal is to keep this call to one hour, so please be courteous and get back into the queue if need be. And for the fourth part of the call today, Don will close with some final comments.

At this time I'll turn it over to Don and ask that you refer to slide five titled first quarter highlights.

Don Washkewicz

Thanks, Pam and good morning to everyone on the call this morning. Just wanted to make a few comments and then we'll turn it back over to Pam for a little bit more detail of the quarter results.

First of all, I'd just like to say that we're extremely pleased today with the results that we delivered in the quarter. We posted record sales of $3.1 billion, which is an increase of 10% over last year's quarter. Particularly impressed and pleased with the organic growth which was strong at 4% in the quarter.

Earnings and earnings per share for the first quarter were records for the company. So we've had a stream of records here for the last with earnings per diluted share increasing 13% to $1.50 a share and cash flow from operations was about 10% of sales or about $307 million.

Little bit about Aerospace, we delivered another strong quarter there with sales increasing at double-digit levels for the second consecutive quarter in Aerospace, and you're certainly all aware of the Boeing strike and that continues to impact our Aerospace business. That strike, our shipments basically stopped in late September, about September 20th and of course as that strike continues on, that's going to continue to affect subsequent quarters going forward.

You'll note that early in the first quarter, we announced another major long-term contract and that was with Bombardier. That's $3.5billion contract for development of fly by wire systems for them. If you look over the last two years now, we have brought in about $10 billion in new business in Aerospace contracts over that last two-year period of time. So we're very excited about the long-term prospects of our Aerospace business.

This here, a little bit about acquisitions, we acquired four strategic acquisitions this year which will contribute sales of $460 million and they're expected to be accretive to earnings.

So we're pretty much on target to hit that 5% of sales number we said that those are basically our internal target here, 5% of sales coming from acquisitions. That would imply that we'd have to do about $600 million a year at the current run rate of $12 billion for the company.

So we're doing pretty well on that metric as well. Also during the quarter, we invested $414 million to repurchase Parker common shares during the first quarter and we announced a dividend increase for the 52nd consecutive year.

Just a couple of comments on markets, I am sure there will be more comments that we'll make later on, and this was in the press release. The total orders are up 1% for the quarter versus a year ago. North America grew a modest 2%, while trends in Aerospace and CIC were stronger with increases 9% and 5% respectively.

Our Industrial International segment has continued to weaken and has been weakening now over the last several quarters. We've been watching that and reporting on that to you as that occurs and right now the international segment had declined 4% in the recent quarter over the same quarter last year.

Distribution being one of the strongest parts of our business remains stable, which is about half of our Industrial business and this continues to be a strength for us going forward. Some North American OEM markets continue to be weak. We've talked about these in the past. They're automotive, heavy-duty truck, refrigeration, residential air conditioning, light construction equipment and semiconductor and so forth.

Some of these major OEM segments have been really soft for quite some time now and eventually they will turn but we're doing I'd say extremely well in light of the fact that many of these segments are down and have been down for quite a while.

Given this economic backdrop, especially in the latter part of our fiscal year, we have decided to revise our fiscal 2009 earnings guidance downward by roughly 5% to a range of 535 to 575. As we have said in the past and will continue to do this in the future, we will try to give you an annual guidance, and we'll try to give you an update on that annual guidance on a quarterly basis and that's what we're doing today.

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