Parker-Hannifin Corporation (PH)

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Parker Hannifin (PH)

Q4 2011 Earnings Call

August 02, 2011 10:00 am ET


Donald Washkewicz - Chairman, Chief Executive Officer and President

Jon Marten - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance & Administration

Pamela Huggins - Vice President and Treasurer


Ann Duignan - JP Morgan Chase & Co

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Terry Darling - Goldman Sachs Group Inc.

Henry Kirn - UBS Investment Bank

Alexander Blanton - Ingalls & Snyder

Eli Lustgarten - Longbow Research LLC

David Raso - ISI Group Inc.

Robert McCarthy - Robert W. Baird & Co. Incorporated

Mark Koznarek - Cleveland Research Company



Good day, ladies and gentlemen, and welcome to the Q4 2011 Parker Hannifin Earnings Conference Call. My name is Keith and I'll be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Ms. Pam Huggins, Vice President and Treasurer of Parker Hannifin. Please proceed, ma'am.

Pamela Huggins

Thanks, Keith. Good morning, everyone. I'd like to welcome you to Parker Hannifin's Fourth Quarter and Fiscal Year 2011 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 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 at one year after today's call.

At this time, reference Slide #2 in the slide deck, which has the safe harbor disclosure statement addressing forward-looking statements. If you haven't already done so, please take note of this statement in its entirety.

Moving to Slide #3, 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 at

To cover the agenda for today on Slide #4, the call will be in 4 parts. First, Don Washkewicz, Chairman, Chief Executive Officer and President, will provide highlights for the quarter. Second, I'll provide a review, including key performance measures of the fourth quarter and full year 2011, concluding with the fiscal year 2012 guidance. The third part of the call will consist of the standard Q&A session. 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 #5, titled fourth quarter and total year fiscal year 2011 highlights.

Donald Washkewicz

Thanks, Pam, and welcome to everyone on the call. I was just reading an old report here before I came into this meeting. It was kind of a wrap up from last quarter and it seems like it continues on. It was a nice report that was done by Nigel Coe and it was titled Cruel and Unusual Punishment. And as I was reflecting on our share price over the last few months, it seems like it just continues on. But anyway, let no good deed go unpunished.

To start the call then, I just would like to take a moment to point out some of the highlights of the year. First, I want to take this opportunity to commend our entire global team for delivering the record performance they did in fiscal '11. We just had a -- just a spectacular year. We achieved numerous records in FY '11, and we'll cover some of those. We're not going to get into all the records but we'll cover some of the highlights of those records as I go forward with this report.

Sales were an all-time record at $12.3 billion, representing almost a 24% increase from last year and it surpassed our prerecession peak of $12.1 billion in fiscal 2008. We're able to achieve strong profitability levels as total segment operating margin reached an all-time record at just under 15% for the year. And for those that have been following us for an extended period of time, you'll know that our Win Strategy goal was to hit 15% operating margins and we're right there at that goal now. It's taken us a few years to get there but here we are. So we're accomplishing what we set out to do. Net income was also an all-time record as we crossed the $1 billion mark for the first time at $1.1 billion. And that gave us one of the highest, I think the highest ROS, net margin ROS, numbers in our history at 8.6%, so pretty remarkable results there. That represented, of course, a record diluted earnings per share of $6.37, which was 87% increase from last year. And it was, by the way, at the high end of our most recently provided guidance and matched TheStreet consensus out there. And I might just reflect a little bit further and just say that if you remember, we finished fiscal '08 which was our record year before the recession and we now have exceeded that sales number just marginally at about $200 million more in sales. And on those additional sales, we delivered $0.84 more earnings per share or 15% more earnings per share on $200 million in sale. I think that's pretty remarkable when you look at the kind of hard work and effort that has gone into building this company by the team worldwide, just a remarkable accomplishment.

Just a couple of comments on the quarter. Sales were an all-time record at $3.4 billion and that was up 22% compared to our prior year quarter and the majority of that, by the way, was organic growth. Orders remained robust. We published those numbers for you, an increased 15% compared with the fourth quarter last year. Net income was an all-time quarterly record at just under $300 million and increased 32% compared to last year's fourth quarter. So the quarter was extremely strong for us and diluted earnings per share were an all-time further record at $1.79 for the quarter, in line with TheStreet consensus again. So really, a remarkable accomplishment there. And of course, I mentioned for the year that our operating margins were 14.8%. Likewise, they were for the quarter as well, about 14.8%. Just under that 15% target that we set out to achieve.

So, we have a very strong financial position. Operating cash flow for the year was $1.2 billion or 9.5% of sales and that enabled us to increase our dividend which we did 3 times this past fiscal year. We also repurchased 8 million shares of Parker stock valued at almost $700 million, with almost all of that completed in the fourth quarter. Overall, we're in an extremely strong position. Our cash position is strong yet and we have a great credit situation as well here at the company.

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