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Parker-Hannifin (PH) Q2 Earnings & Sales Beat, View Up Again

Parker-Hannifin CorporationPH kept its impressive streak of beating estimates alive for the 10th consecutive quarter, as its second-quarter fiscal 2018 adjusted earnings of $2.15 per share trumped the Zacks Consensus Estimate of $2.06 by 4.4%.

The earnings figure was even more impressive on a year-over-year basis, reflecting impressive growth of 12.6%. The bottom-line improvement came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.

Inside the Headlines

Net sales in the fiscal second quarter jumped an impressive 26% year over year to a record second-quarter level of $3,371 million, and also trumped the Zacks Consensus Estimate of $3,336 million. Contribution from the CLARCOR acquisition and continued outstanding performance in the company's Diversified Industrial segment were major growth drivers. Organic sales increased 10% year over year.

Parker-Hannifin's adjusted total segment operating income for the reported quarter came in at $503.1 million, up 28.4% from the year-ago tally of $391.9 million. Orders also increased 13% in aggregate for the company.The company witnessed order growth for the sixth consecutive quarter, mirroring improving demand in the key end markets and regions.

Segmental Performance

At the Diversified Industrial segment, North American sales for the quarter climbed 40% to $1,565 million, continuing its striking momentum. Additionally, this segment recorded 15% growth in orders on a year-over-year basis.

Industrial International, which is also classified under the Diversified Industrial segment, performed strongly as well, as it reported a 25% year-over-year jump in sales to $1,256 million. In addition to robust sales growth, orders at this segment also advanced 13% on a year-over-year basis.

Revenues at the Aerospace Systems segment returned to growth this quarter and inched up 1.1% year over year to $549.7 million. Orders grew 8% at this segment on a rolling 12-month average basis.

In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well.Adjusted segment operating margins during the quarter came in at 14.9%, expanding 20 basis points year over year. In addition to accelerated revenue growth, successful execution of the company's Win Strategy initiatives drove margins.

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

Parker-Hannifin Corporation Price, Consensus and EPS Surprise | Parker-Hannifin Corporation Quote

Liquidity

As of Dec 31, 2017, Parker-Hannifin's cash and cash equivalents were $1,024.8 million, down significantly from $1,520.7 million witnessed in the prior year. Long-term debt was $4,798.4 million at year end, substantially higher than $2,653 million recorded at the same time last year.

Acquisitions

In third-quarter fiscal 2017, Parker-Hannifin closed its most notable acquisition agreement to buy air filtration-systems provider - CLARCOR Inc. - for roughly $4.3 billion in cash. CLARCOR will unlock fresh recurring revenue streams for Parker-Hannifin's Filtration Group as 80% of CLARCOR's revenues are generated through aftermarket sales. The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales at this unit, and optimize the after-market mix of Parker-Hannifin.

Further, on Feb 1, 2017, Parker-Hannifin announced the acquisition of Helac Corporation, which specializes in the design and manufacture of helical rotary actuators. Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.

The company is currently integrating these two filtration units into its businesses. We believe these acquisitions will unlock significant synergies and drive growth for the company in the times to come.

Guidance

Once again, Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2018. Adjusted earnings from continuing operations are now projected to lie in the range of $9.65-$10.05 per share (previous projection: $9.10-$9.70). The revised guidance reflects a reduction in the average effective tax rate for the company in fiscal 2018. The guidance is adjusted for expected business realignment expenses of approximately $58 million,a net one-time adjustment in income tax expense of $224.5 million and CLARCOR acquisition-related expenses of $52 million.

To Conclude

The first half of fiscal 2018 has been outstanding for Parker-Hannifin. The company's overarching Win Strategy has proven to be a tried and tested growth driver for its key financials. Furthermore, its diligent global restructuring initiatives are proving conducive to profitability. These initiatives helped Parker-Hannifin offset weakness in some vital regions and in the Aerospace Systems segment as well, in turn strengthening the company's position in the end markets.

Buoyed by the competency of the revamped Win Strategy and its strategic acquisitions, Parker-Hannifin is bullish about delivering its fundamental financial goals. The company has made impressive progress in key areas, including safety performance, customer experience, and profitable growth, and believes these initiatives will unlock further growth opportunities.

Encouragingly, this company has been witnessing broad-based improvements in many of its end markets and regions, indicating brighter prospects in fiscal 2018.

Zacks Rank & Stocks to Consider

Parker-Hannifin carries a Zacks Rank #3 (Hold), at present.

Some better-ranked stocks in the same space include Applied Industrial Technologies, Inc. AIT , Colfax Corporation CFX and Sun Hydraulics Corporation SNHY , each sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Applied Industrial Technologies has a robust earnings surprise history, with an average beat of 11% over the trailing four quarters, beating estimates each time.

Colfax has a decent earnings surprise history for the preceding four quarters, having beaten estimates twice for an average of 5.3%.

Sun Hydraulics has generated three strong beats during the same time frame, for an average positive surprise of 9.6%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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