Parker-Hannifin Corporation (PH)

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Parker-Hannifin Corporation (PH)

F2Q09 Earnings Call

January 20, 2009 10:00 am ET


Pamela J. Huggins – Corporate Vice President & Treasurer

Donald E. Washkewicz – Chairman of the Board, President & Chief Executive Officer

Timothy K. Pistell – Chief Financial Officer & Executive Vice President Finance and Administration


Eli Lustgarten – Longbow Research

Nigel Coe – Deutsche Bank

Terry Darling – Goldman Sachs

Andrew Casey – Wachovia Securities

Ann Duignan – JP Morgan

Unidentified Analyst

Alex Blanton – Ingalls & Snyder LLC

Mark Koznarek – Cleveland Research

Daniel Dowd – Sanford Bernstein

Robert McCarthy – Robert W. Baird & Co., Inc.

Henry Kirn – UBS

Analyst for Jamie Cook – Credit Suisse



Welcome to the second quarter Parker-Hannifin Corporation earnings release conference call. My name is Nancy 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 question at 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 of Parker-Hannifin Corporation.

Pamela J. Huggins

This is Pam Huggins speaking, as Nancy said. I’d like to welcome you to Parker-Hannifin’s second 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.

As normal, let me just address a couple of administrative matters prior to beginning with the actual earnings release. First, for those of you online, you may follow today’s presentation with the 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 [].

I want to call your attention to Slide Two which is the Safe Harbor disclosure on forward-looking statements and ask that you take note of this statement in its entirety. Third, moving to Slide 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.

Then moving to the agenda on 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 concluding with the revised outlook for fiscal year 2009. The third part of the call will consist of the standard Q&A session and as a reminder, please ask one question at a time.

My goal today is to keep this call to no more than an hour so please be courteous and get back in the queue if need be. For the fourth part of the call today Don will close will some final comments. At this time I’ll turn it over to Don and ask that you refer to Slide Five entitled second quarter highlights.

Donald E. Washkewicz

I just want to make a few brief comments and then Pam will run through a more detailed review of the quarter. First of all, I wanted to share some key aspects of our performance for the quarter. It has become clear in recent months that the global recession has grown deeper and wider than any of us originally anticipated as evident in reports from other manufacturers and our own orders we are seeing a significant pull back in demand across many markets and all regions which has impacted our performance.

You may recall at the last meeting the rest of the world was still doing fairly well, well that situation has changed pretty dramatically sense. Numerous customer shutdowns occurred in December and we brought that up at our December meeting with analyst here in town and a lot of those shutdowns now are continuing on in to January so we’ve seen impact from those shutdowns in our second quarter, we’re going to see additional impacts in our third quarter as well.

Sales in the second quarter were $2.7 billion, a decline of 5% compared to last year’s quarter. What you need to know about that number is while acquisitions contributed 6% this was more than offset by negative foreign currency translation of 6% and a decline in organic sales of about 5%. The drop in sales volumes of course led to a decline in earnings. Earnings per share declined 20% to $0.96 in the quarter.

Cash flow from operations year-to-date was $444 million or 7.7% of sales and we’re fairly pleased with that level of cash flow. That’s only off about 6% from last year so it remains at a pretty high level and of course we’re planning on continuing to work cash flow throughout the balance of this year. I am pleased that we were also able to manage and control our inventories on a real time basis. Excluding acquisitions, inventories were actually down. We’ll talk more about that a little later.

A bright spot in the quarter is the positive performance of our aerospace segment which delivered 10% sales growth and significantly improved profit and margin performance. On another positive note, recently we were awarded a contract by Rolls Royce valued at $2.5 billion in revenue over its lifetime. That brings our total contract awards over the past two years in aerospace alone to over $12 billion. So, we’re pretty excited about that.

Markets, just a couple of comments on markets and what we are seeing, as noted in our press release, total orders are down 20% in the quarter versus a year ago. Industrial North America orders declined 18%, industrial international continued to weaken as we posted a 28% decline in orders keeping in mind that this is compared with a record demand level in prior year quarter.

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