Parker-Hannifin (PH) Q1 2016 earnings summary

Executive summary

• Q1 FY2016 net sales were $2,869.3M, down 12.3% reported and 7.0% organically; currency reduced sales by $187M, while net income was $195.0M vs. $280.2M.

• Adjusted EPS was $1.52 vs. $1.89; adjusted segment operating margin was 15.3% vs. 16.1%.

• Industrial declines weighed on results, while Aerospace Systems grew sales and operating margin; FY2016 adjusted EPS guidance was lowered to a $6.10 midpoint.

Financial highlights

• Net sales were $2,869.3M vs. $3,269.9M; gross profit was $668.4M vs. $810.1M, and income before taxes was $275.6M vs. $396.6M.

• Net income attributable to common shareholders was $195.0M vs. $280.1M; diluted EPS was $1.41 reported and $1.52 adjusted, vs. $1.85 and $1.89, respectively.

• Adjusted segment operating income was $438M vs. $525M; currency reduced sales by $187M, or 5.7%.

• Operating cash flow was $5.0M after a $200M discretionary U.S. pension contribution; excluding the contribution, cash flow was 7.1% of sales vs. 8.0%.

• Cash uses included $310M in share repurchases, $86M in dividends, $67.6M for acquisitions and $39M in capital expenditures.

Outlook and guidance

• FY2016 EPS guidance was $5.30–$5.90 reported and $5.80–$6.40 adjusted, with a $6.10 adjusted midpoint vs. prior-year EPS of $7.00.

• FY2016 sales guidance was down 7.7%–11.3% overall; adjusted organic sales at midpoint were down 7.2%.

• Adjusted segment margin guidance was 14.6%–15.0%, excluding realignment charges; guidance included $70M of savings and excluded ~$100M of FY2016 realignment charges.

• H2 organic sales were expected to decline 5% YoY, revised from prior guidance for 2.7% growth; no meaningful natural-resource market recovery was assumed.

• Q2 adjusted EPS was projected at a $1.16 midpoint, excluding $0.20 of realignment expenses; sales were expected down ~14%.