Parker Reports Fiscal 2016 Second Quarter Results

• Second quarter EPS $1.33 as reported, or $1.52 adjusted for business realignment
• Sales decreased 14% with 4% due to currency, 10% organic
• Simplification and restructuring efforts generated impressive decremental marginal return on sales of 23.2% as reported, 17.2% adjusted
• Company maintains fiscal 2016 full-year adjusted earnings guidance

CLEVELAND, Jan. 26, 2016 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2016 second quarter ended December 31, 2015.  Fiscal 2016 second quarter sales were $2.71 billion, compared with $3.13 billion in the prior year quarter. Net income was $183.1 million, compared with $267.3 million in the second quarter of fiscal 2015.  Fiscal 2016 second quarter earnings per share were $1.33, compared with $1.80 in the prior year quarter.  Adjusted earnings per share were $1.52, compared with $1.84 in the prior year quarter.  A reconciliation of reported to adjusted earnings per share is included with the financial tables in this news release.

“We have taken purposeful action in managing our cost structure to reflect challenging global market conditions,” said Chairman and Chief Executive Officer Tom Williams.  “Continued weakness, stemming from natural resource related end markets such as oil and gas, construction, mining and agriculture, continues to impact sales and order rates.  Our global teams have adapted quickly to these changes allowing us to deliver solid margin performance with decremental marginal returns of 17.2% on an adjusted basis.  We are executing our previously announced restructuring actions and have made significant progress with Simplification initiatives to reduce complexity, increase speed, reduce costs and better serve our customers.  We remain well positioned to weather the current downturn.”

During the quarter, the company repurchased $90 million of Parker shares, and $400 million have been repurchased year-to-date. Approximately $1.7 billion in shares have been purchased under a previously announced authorization to repurchase between $2 billion and $3 billion in shares over two years, beginning in October 2014.

Segment Results

Diversified Industrial Segment: North American second quarter sales decreased 16% to $1.2 billion and operating income was $153.6 million compared with $226.9 million in the same period a year ago.  International second quarter sales decreased 16% to $1.0 billion, the majority of the decline in sales was the result of changes in foreign currency rates. International operating income was $95.4 million compared with $136.5 million in the same period a year ago.

Aerospace Systems Segment: Second quarter sales decreased 1% to $552.4 million, and operating income increased 22% to $81.8 million, compared with $66.8 million in the same period a year ago.

Orders

Parker reported a decrease in orders of 12% for the quarter ending December 31, 2015, compared with the same quarter a year ago.  The company reported the following orders by business: 

• Orders decreased 15% in the Diversified Industrial North America businesses compared with the same quarter a year ago.
• Orders decreased 10% in the Diversified Industrial International businesses compared with the same quarter a year ago.
• Orders decreased 11% in the Aerospace Systems segment on a rolling 12-month average basis.

Outlook

For the fiscal year ending June 30, 2016, the company has maintained the midpoint and narrowed the range of guidance for earnings from continuing operations to $5.40 to $5.80 per share, or $5.90 to $6.30 per share on an adjusted basis.  Fiscal year 2016 guidance is adjusted for expected business realignment expenses of approximately $0.50 per share, of which $0.30 per share relates to the company’s Simplification initiatives. Guidance also reflects an expected full year tax rate of approximately 28%.

Williams added, “We expect that market conditions will continue to be challenging through the end of fiscal 2016. Efforts to align costs accordingly and position Parker to deliver strong financial performance will continue and are reflected in our outlook.  Parker team members are also working hard to further many new growth initiatives established by our new Win StrategyTM.  Expanding our distribution network, commercializing new products and systems, improving the customer experience, developing services, e-Business and Internet of Things are all opportunities that we are pursuing to spur future growth and solidify our position as the leader in the motion and control industry.”

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2016 second quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker.  A replay of the webcast will also be available at www.phstock.com for one year after the call.

With annual sales of approximately $13 billion in fiscal year 2015, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets.  The company has operations in 50 countries around the world.  Parker has increased its annual dividends paid to shareholders for 59 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index.  For more information, visit the company's website at www.parker.com, or its investor information website at www.phstock.com.

Note on Orders

Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly % change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems segment.

Note on Non-GAAP Numbers

This press release contains references to (a) segment operating margins, earnings per share and net income without the effect of business realignment expenses; and (b) the effect of business realignment expenses on forecasted earnings from continuing operations per share. The effects of business realignment expenses are removed to allow investors and the company to meaningfully evaluate changes in segment operating margin, earnings per share and net income on a comparable basis from period to period.

Forward-Looking Statements

Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully the Company’s capital allocation initiatives, including timing, price and execution of share repurchases; increases in raw material costs that cannot be recovered in product pricing; the company's ability to manage costs related to insurance and employee retirement and health care benefits;  threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; competitive market conditions and resulting effects on sales and pricing; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.

PARKER HANNIFIN CORPORATION - DECEMBER 31, 2015
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in thousands except per share amounts)		2015			2014			2015			2014
Net sales	$	2,705,590		$	3,134,993		$	5,574,938		$	6,404,925
Cost of sales		2,140,624			2,401,584			4,341,528			4,861,449
Gross profit		564,966			733,409			1,233,410			1,543,476
Selling, general and administrative expenses		314,666			379,804			684,880			780,644
Interest expense		34,297			27,645			70,057			48,606
Other (income), net		(13,877	)		(17,306	)		(27,056	)		(25,675	)
Income before income taxes		229,880			343,266			505,529			739,901
Income taxes		46,743			75,931			127,366			192,395
Net income		183,137			267,335			378,163			547,506
Less:  Noncontrolling interests		155			83			203			165
Net income attributable to common shareholders	$	182,982		$	267,252		$	377,960		$	547,341
Earnings per share attributable to common shareholders:
Basic earnings per share	$	1.35		$	1.84		$	2.78		$	3.72
Diluted earnings per share	$	1.33		$	1.80		$	2.74		$	3.66
Average shares outstanding during period - Basic		135,373,356			145,493,247			136,108,930			147,116,038
Average shares outstanding during period - Diluted		137,065,447			148,182,777			137,788,219			149,463,280
Cash dividends per common share	$	.63		$	.63		$	1.26		$	1.11
RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE
Net income	$	183,137		$	267,335		$	378,163		$	547,506
Adjustments:
Business realignment charges		25,463			6,450			41,015			11,962
Adjusted net income	$	208,600		$	273,785		$	419,178		$	559,468
Earnings per diluted share	$	1.33		$	1.80		$	2.74		$	3.66
Adjustments:
Business realignment charges		0.19			0.04			0.30			0.08
Adjusted earnings per diluted share	$	1.52		$	1.84		$	3.04		$	3.74
BUSINESS SEGMENT INFORMATION
(Unaudited)	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in thousands)		2015			2014			2015			2014
Net sales
Diversified Industrial:
North America	$	1,160,774		$	1,389,207		$	2,447,104		$	2,861,019
International		992,464			1,187,400			2,030,911			2,450,897
Aerospace Systems		552,352			558,386			1,096,923			1,093,009
Total	$	2,705,590		$	3,134,993		$	5,574,938		$	6,404,925
Segment operating income
Diversified Industrial:
North America	$	153,581		$	226,888		$	366,329		$	491,124
International		95,367			136,525			224,662			326,330
Aerospace Systems		81,764			66,817			155,767			132,166
Total segment operating income		330,712			430,230			746,758			949,620
Corporate general and administrative expenses		31,210			51,360			84,261			106,804
Income before interest and other		299,502			378,870			662,497			842,816
Interest expense		34,297			27,645			70,057			48,606
Other expense		35,325			7,959			86,911			54,309
Income before income taxes	$	229,880		$	343,266		$	505,529		$	739,901
RECONCILIATION OF SEGMENT OPERATING MARGIN TO ADJUSTED SEGMENT OPERATING MARGIN
(Unaudited)
	Three Months Ended						Six Months Ended
	December 31, 2015						December 31, 2015
	Operating income			Margin			Operating income			Margin
As reported segment operating income	$	330,712			12.2	%	$	746,758			13.4	%
Adjustments:
Business realignment charges		34,800						56,588
Adjusted segment operating income	$	365,512			13.5	%	$	803,346			14.4	%
CONSOLIDATED BALANCE SHEET
(Unuaudited)	December 31,			June 30,			December 31,
(Dollars in thousands)		2015			2015			2014
Assets
Current assets:
Cash and cash equivalents	$	1,047,494		$	1,180,584		$	1,075,307
Marketable securities and other investments		820,682			733,490			886,879
Trade accounts receivable, net		1,419,934			1,620,194			1,572,864
Non-trade and notes receivable		293,913			364,534			428,090
Inventories		1,279,760			1,300,459			1,453,996
Prepaid expenses		141,030			241,684			160,335
Deferred income taxes		148,198			142,147			150,301
Total current assets		5,151,011			5,583,092			5,727,772
Plant and equipment, net		1,598,185			1,664,022			1,716,489
Goodwill		2,913,065			2,942,679			3,011,894
Intangible assets, net		975,515			1,013,439			1,090,972
Other assets		1,116,315			1,091,805			1,021,272
Total assets	$	11,754,091		$	12,295,037		$	12,568,399
Liabilities and equity
Current liabilities:
Notes payable	$	574,302		$	223,142		$	242,043
Accounts payable		948,157			1,092,138			1,145,202
Accrued liabilities		736,145			894,555			817,152
Accrued domestic and foreign taxes		109,495			140,295			134,754
Total current liabilities		2,368,099			2,350,130			2,339,151
Long-term debt		2,724,860			2,723,960			2,725,510
Pensions and other postretirement benefits		1,475,351			1,699,197			1,309,477
Deferred income taxes		76,405			77,967			86,606
Other liabilities		306,655			336,214			347,514
Shareholders' equity		4,799,406			5,104,287			5,756,749
Noncontrolling interests		3,315			3,282			3,392
Total liabilities and equity	$	11,754,091		$	12,295,037		$	12,568,399
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)	Six Months Ended December 31,
(Dollars in thousands)		2015			2014
Cash flows from operating activities:
Net income	$	378,163		$	547,506
Depreciation and amortization		156,093			160,625
Stock incentive plan compensation		39,026			52,217
Gain on sale of businesses		-			(5,791	)
(Gain) loss on disposal of assets		(336	)		8,092
Gain on sale of marketable securities		(158	)		-
Net change in receivables, inventories, and trade payables		41,866			2,205
Net change in other assets and liabilities		(255,296	)		(167,918	)
Other, net		(12,730	)		(58,439	)
Net cash provided by operating activities		346,628			538,497
Cash flows from investing activities:
Acquisitions (net of cash of $3,814 in 2015 and $3,979 in 2014)		(67,552	)		(18,640	)
Capital expenditures		(75,419	)		(109,781	)
Proceeds from sale of plant and equipment		8,506			3,902
Proceeds from sale of businesses		-			22,779
Purchases of marketable securities and other investments		(575,183	)		(971,606	)
Maturities and sales of marketable securities and other investments		527,819			475,851
Other, net		(41,450	)		(43,239	)
Net cash (used in) investing activities		(223,279	)		(640,734	)
Cash flows from financing activities:
Net payments for common stock activity		(394,030	)		(852,524	)
Net proceeds from debt		356,591			669,975
Dividends		(171,707	)		(164,758	)
Net cash (used in) financing activities		(209,146	)		(347,307	)
Effect of exchange rate changes on cash		(47,293	)		(88,704	)
Net (decrease) in cash and cash equivalents		(133,090	)		(538,248	)
Cash and cash equivalents at beginning of period		1,180,584			1,613,555
Cash and cash equivalents at end of period	$	1,047,494		$	1,075,307
RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE
(Unaudited)
(Amounts in dollars)
	Fiscal Year
		2016
Forecasted earnings per diluted share	$5.40 to $5.80
Adjustments:
Business realignment charges	.50
Adjusted forecasted earnings per diluted share	$5.90 to $6.30

Contact:
Media –
Aidan Gormley, Director, Global Communications and Branding
216/896-3258
[email protected]

Financial Analysts –
Robin J. Davenport, Vice President, Corporate Finance
216/896-2265
[email protected]

Source: Parker Hannifin Corporation

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Alphabet stock surges 11% to record high on Q1 earnings beat, first-ever dividend
• Alphabet, Microsoft earnings; PCE data ahead - what's moving markets
• Nomura Holdings (NMR) Reports In-Line Q1 EPS