Parker-Hannifin CorporationPH continued its recent streak of beating estimates alive for the sixth consecutive quarter, as its adjusted earnings of $1.91 per share for second-quarter fiscal 2017 came miles ahead of the Zacks Consensus Estimate of $1.40.
The earnings figures reflected an impressive growth of 25.7% on a year-over-year basis. The year-over-year improvement in the bottom line came largely on the back of the revamped Win Strategy. In addition, a fall in cost of sales proved conducive to the earnings performance.
The company shares rose 2.7% at one point in pre-market trading as investors cheered the remarkable beat.
Inside the Headlines
Net sales in the fiscal second quarter edged down 1.3% year over year to $2,671 million, but came marginally ahead of the Zacks Consensus Estimate of $2,697 million. Currency headwinds and lackluster performance in the company's Diversified Industrial segment proved to be a major drag.
Parker-Hannifin's adjusted total segment operating income for the reported quarter was $391.9 million, up from the year-ago tally of $365.5 million.
At the Diversified Industrial Segment, North American sales for the quarter decreased 3.4% to $1,161 million. Additionally, this segment recorded flat growth in orders on a year-over-year basis.
International Industrial, which is also classified under the Diversified Industrial segment, performed a little better as it reported a 1.4% year-over-year increase in sales to $1,006 million. In addition to decent sales growth, orders at this segment rose 10% on a year-over-year basis.
Revenues at the Aerospace Systems segment fell 1.6% year over year to $544 million. However, orders at this segment improved 9% in the quarter under review.
Despite tepid overall sales growth, PH achieved strong adjusted segment operating margins during the reported quarter, which were a second quarter record of 14.7%, expanding 120 basis points year over year.
As of Dec 31, 2016, Parker-Hannifin's cash and cash equivalents were $1,521 million compared with $1,047 million at the end of second-quarter fiscal 2016. Long-term debt was $2,654 million at the end of second-quarter fiscal 2017 compared with $2,701 million as of Dec 31, 2015.
During the quarter, Parker-Hannifin inked its most notable acquisition agreement to buy air filtration systems provider - CLARCOR Inc. - for roughly $4.3 billion in cash. CLARCOR is bringing a range of industrial air and liquid filtration products and technologies to the table, which will significantly bolster Parker-Hannifin's filtration product suite. Moreover, this acquisition will unlock fresh recurring revenue streams for Parker-Hannifin's Filtration Groupas 80% of CLARCOR's revenue is 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.
Further, on Feb 1, Parker-Hannifin announced the acquisition of Helac Corporation, which specializes in the design and manufacture of helical rotary actuators. Helac also manufactures a line of attachments used in material handling and construction equipment markets.
Helac will be integrated into Parker-Hannifin's Cylinder Division within the Hydraulics Group and its sales will be reported under Parker's Diversified Industrial segment. The addition of Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.
We believe that these acquisitions will drive growth and expansion for the company in the times to come.
Parker-Hannifin raised its guidance for adjusted earnings from continuing operations for the fiscal year ending Jun 30, 2017 to a range of $7.05-$7.55 per share (up from previous projection of $6.40-$7.10). This guidance is adjusted for expected business realignment expenses of approximately 25 cents per share, and acquisition-related expenses of 9 cents per share, and excludes any impact from the CLARCOR or Helac acquisitions.
Buoyed by the competency of the revamped Win Strategy, 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 that these initiatives will unlock further growth opportunities.
Parker-Hannifin Corporation Price, Consensus and EPS Surprise
Parker-Hannifin's overarching Win Strategy has proven to be a tried and tested growth driver for its key financials. Moreover, the company's diligent global restructuring initiatives are also proving conducive to profitability. These initiatives helped Parker-Hannifin offset weakness in some key regions, thus strengthening the company's position in end markets. Encouragingly, the company has been witnessing stabilization in most of its key end markets, indicating brighter prospects.
Despite these positives, tough economic conditions and currency headwinds will likely play a spoilsport, thwarting the Zacks Rank #3 (Hold) company's growth to some extent.
Zacks Rank & Stocks to Consider
Some better-ranked stocks in the Manufacturing - General Industrial industry include Altra Industrial Motion Corp. AIMC , Chart Industries Inc. GTLS and Manitex International, Inc. MNTX , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Altra Industrial has a positive earnings surprise history, with an average of 8.1% in the trailing four quarters, beating estimates all through.
Chart Industries has a robust earnings beat history, having surpassed estimates thrice in the trailing four quarters, for a whopping average positive earnings surprise of 548.5%,
Manitex International beat estimates by 225% last quarter, and has managed to post two massive beats in the trailing four quarters.
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