Parker Reports Fiscal 2016 Third Quarter Results

• Earnings per diluted share $1.37 as reported, or $1.51 adjusted for realignment expenses
• Impressive decremental margins of 17.0% as reported, 11.8% adjusted, reflect business restructuring and Simplification actions
• Segment operating margins 13.8% as reported, or 14.7% adjusted
• Company increases full year fiscal 2016 guidance

CLEVELAND, April 26, 2016 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today announced results for the fiscal 2016 third quarter ended March 31, 2016.  Fiscal 2016 third quarter sales decreased 11% to $2.83 billion compared with $3.16 billion in the same quarter a year ago.  Fiscal 2016 third quarter net income was $187.1 million compared with $285.5 million in the third quarter of fiscal 2015.  Fiscal 2016 third quarter earnings per share were $1.37 compared with $2.02 per share in the prior year quarter.  Adjusted earnings per share were $1.51 in the fiscal 2016 third quarter compared with $2.06 per share in the prior year quarter.  A reconciliation of as reported to adjusted earnings per diluted share and segment operating margins is included with the financial tables accompanying this news release.

Cash flow from operations for the first nine months of fiscal 2016 was $681.5 million, or 8.1% of sales, compared with $791.1 million, or 8.3% of sales, in the prior year period. Excluding a discretionary contribution to the company's pension plan of $200 million, fiscal 2016 year-to-date cash flow from operations was 10.5% of sales.

"Implementation of the new Win Strategy™ has helped us achieve strong adjusted segment operating margins and impressive decremental marginal return on sales, especially given difficult macroeconomic conditions,” said Tom Williams, Chairman and Chief Executive Officer.  “We are on track to achieve our previously stated sales target while improving operating margins for the full fiscal year."

Segment Results  Diversified Industrial Segment: North American third quarter sales decreased 13% to $1.25 billion and operating income was $202.2 million, compared with $235.5 million in the same period a year ago.  International third quarter sales decreased 11% to $1.02 billion and operating income was $105.2 million, compared with $139.5 million in the same period a year ago. 

Aerospace Systems Segment:  Third quarter sales decreased 2% to $561.0 million and operating income was $84.2 million, compared with $73.3 million in the same period a year ago.

OrdersParker reported a decrease of 6% in orders for the quarter ending March 31, 2016, compared with the same quarter a year ago.  The company reported the following orders by business: 

• Orders decreased 9% in the Diversified Industrial North America businesses;
• Orders decreased 6% in the Diversified Industrial International businesses; and
• Orders increased 1% in the Aerospace Systems segment on a rolling 12-month average basis.

Share Repurchases During the quarter, the company repurchased approximately $50 million of Parker shares bringing the total repurchases for fiscal 2016 year-to-date to approximately $450 million. 

Outlook  For the fiscal year ending June 30, 2016, the company has increased guidance for earnings from continuing operations to the range of $5.57 to $5.77 per share, or $6.20 to $6.40 per share, adjusted.  Earnings guidance is adjusted for business realignment expenses of approximately $0.63 per share, including $0.40 per share related to Simplification initiatives.

Williams added, “We remain focused on increasing employee engagement, delivering premier customer experience, and in driving overall growth and profitability which are core tenets of the new Win Strategy that we announced six months ago. I am pleased at how far we have come in such a short period of time and continue to be excited about the opportunities that we have for the future.”

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2016 third 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 conference call 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 60 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 OrdersOrders 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 NumbersThis press release contains references to (a) segment operating margins and earnings per share without the effect of business realignment expenses; (b) the effect of business realignment expenses on forecasted earnings from continuing operations per share; and (c) cash flows from operations without the effect of a discretionary pension contribution. The effects of business realignment expenses and the discretionary pension contribution are removed to allow investors and the company to meaningfully evaluate changes in segment operating margin, earnings per share and cash flows from operations on a comparable basis from period to period.

Forward-Looking StatementsForward-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 - MARCH 31, 2016
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)					Three Months Ended March 31,								Nine Months Ended March 31,
(Dollars in thousands except per share amounts)						2016				2015				2016				2015
Net sales					$	2,828,665			$	3,162,311			$	8,403,603			$	9,567,236
Cost of sales						2,209,401				2,373,016				6,550,929				7,234,465
Gross profit						619,264				789,295				1,852,674				2,332,771
Selling, general and administrative expenses						335,908				372,306				1,020,788				1,152,950
Interest expense						33,745				35,003				103,802				83,609
Other (income), net						(23,382	)			(6,380	)			(50,438	)			(32,055	)
Income before income taxes						272,993				388,366				778,522				1,128,267
Income taxes						85,851				102,904				213,217				295,299
Net income						187,142				285,462				565,305				832,968
Less:  Noncontrolling interests						58				117				261				282
Net income attributable to common shareholders					$	187,084			$	285,345			$	565,044			$	832,686
Earnings per share attributable to common shareholders:
Basic earnings per share					$	1.39			$	2.06			$	4.16			$	5.77
Diluted earnings per share					$	1.37			$	2.02			$	4.12			$	5.68
Average shares outstanding during period - Basic						134,809,610				138,794,789				135,675,823				144,342,288
Average shares outstanding during period - Diluted						136,552,769				141,189,803				137,311,848				146,627,273
Cash dividends per common share					$	.63			$	.63			$	1.89			$	1.74
RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE
Net income					$	187,142			$	285,462			$	565,305			$	832,968
Adjustments:
Business realignment charges						19,226				6,352				60,241				18,496
Adjusted net income					$	206,368			$	291,814			$	625,546			$	851,464
Earnings per diluted share					$	1.37			$	2.02			$	4.12			$	5.68
Adjustments:
Business realignment charges						0.14				0.04				0.44				0.13
Adjusted earnings per diluted share					$	1.51			$	2.06			$	4.56			$	5.81

 

BUSINESS SEGMENT INFORMATION
(Unaudited)					Three Months Ended March 31,								Nine Months Ended March 31,
(Dollars in thousands)						2016				2015				2016				2015
Net sales
Diversified Industrial:
North America					$	1,247,904			$	1,441,625			$	3,695,008			$	4,302,644
International						1,019,776				1,148,248				3,050,687				3,599,145
Aerospace Systems						560,985				572,438				1,657,908				1,665,447
Total					$	2,828,665			$	3,162,311			$	8,403,603			$	9,567,236
Segment operating income
Diversified Industrial:
North America					$	202,180			$	235,516			$	568,509			$	726,640
International						105,161				139,473				329,823				465,803
Aerospace Systems						84,238				73,334				240,005				205,500
Total segment operating income						391,579				448,323				1,138,337				1,397,943
Corporate general and administrative expenses						42,322				45,515				126,583				152,319
Income before interest and other						349,257				402,808				1,011,754				1,245,624
Interest expense						33,745				35,003				103,802				83,609
Other expense (income)						42,519				(20,561	)			129,430				33,748
Income before income taxes					$	272,993			$	388,366			$	778,522			$	1,128,267
RECONCILIATION OF SEGMENT OPERATING MARGIN TO ADJUSTED SEGMENT OPERATING MARGIN
(Unaudited)
					Three Months Ended								Nine Months Ended
					March 31, 2016								March 31, 2016
					Operating income					Margin			Operating income					Margin
As reported segment operating income					$	391,579				13.8	%		$	1,138,337				13.5	%
Adjustments:
Business realignment charges						25,030								81,618
Adjusted segment operating income					$	416,609				14.7	%		$	1,219,955				14.5	%

CONSOLIDATED BALANCE SHEET
(Unuaudited)					March 31,				June 30,				March 31,
(Dollars in thousands)						2016				2015				2015
Assets
Current assets:
Cash and cash equivalents					$	1,034,971			$	1,180,584			$	1,017,013
Marketable securities and other investments						1,069,658				733,490				1,013,692
Trade accounts receivable, net						1,587,785				1,620,194				1,701,017
Non-trade and notes receivable						245,248				364,534				324,140
Inventories						1,248,213				1,300,459				1,387,681
Prepaid expenses						124,025				241,684				188,855
Deferred income taxes						146,939				142,147				152,599
Total current assets						5,456,839				5,583,092				5,784,997
Plant and equipment, net						1,598,758				1,664,022				1,643,538
Goodwill						2,948,284				2,942,679				2,892,705
Intangible assets, net						961,206				1,013,439				1,022,425
Other assets						1,104,314				1,091,805				993,550
Total assets					$	12,069,401			$	12,295,037			$	12,337,215
Liabilities and equity
Current liabilities:
Notes payable					$	576,621			$	223,142			$	665,123
Accounts payable						999,159				1,092,138				1,138,163
Accrued liabilities						801,716				894,555				822,385
Accrued domestic and foreign taxes						123,123				140,295				141,653
Total current liabilities						2,500,619				2,350,130				2,767,324
Long-term debt						2,675,000				2,723,960				2,724,943
Pensions and other postretirement benefits						1,483,641				1,699,197				1,288,166
Deferred income taxes						80,452				77,967				78,276
Other liabilities						302,706				336,214				323,567
Shareholders' equity						5,023,612				5,104,287				5,151,715
Noncontrolling interests						3,371				3,282				3,224
Total liabilities and equity					$	12,069,401			$	12,295,037			$	12,337,215

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)					Nine Months Ended March 31,
(Dollars in thousands)						2016				2015
Cash flows from operating activities:
Net income					$	565,305			$	832,968
Depreciation and amortization						231,777				237,232
Stock incentive plan compensation						53,735				74,830
Gain on sale of businesses						(10,668	)			(4,732	)
Loss on disposal of assets						76				10,248
Gain on sale of marketable securities						(535	)			-
Net change in receivables, inventories, and trade payables						(19,661	)			(132,515	)
Net change in other assets and liabilities						(138,268	)			(118,047	)
Other, net						(262	)			(108,934	)
Net cash provided by operating activities						681,499				791,050
Cash flows from investing activities:
Acquisitions (net of cash of $3,814 in 2016 and $3,979 in 2015)						(67,552	)			(18,640	)
Capital expenditures						(110,804	)			(157,418	)
Proceeds from sale of plant and equipment						14,112				15,525
Proceeds from sale of businesses						24,325				35,577
Purchases of marketable securities and other investments						(1,188,594	)			(1,456,410	)
Maturities and sales of marketable securities and other investments						974,417				828,653
Other, net						(40,364	)			(44,726	)
Net cash (used in) investing activities						(394,460	)			(797,439	)
Cash flows from financing activities:
Net payments for common stock activity						(441,300	)			(1,326,521	)
Net proceeds from debt						305,555				1,117,343
Dividends						(256,890	)			(252,745	)
Net cash (used in) financing activities						(392,635	)			(461,923	)
Effect of exchange rate changes on cash						(40,017	)			(128,230	)
Net (decrease) in cash and cash equivalents						(145,613	)			(596,542	)
Cash and cash equivalents at beginning of period						1,180,584				1,613,555
Cash and cash equivalents at end of period					$	1,034,971			$	1,017,013

 

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					$5.57 to $5.77
Adjustments:
Business realignment charges					.63
Adjusted forecasted earnings per diluted share					$6.20 to $6.40

 

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

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