Parker-Hannifin (PH) Q3 2015 earnings summary

Executive summary

• Q3 sales were $3.162B, down 5.8% reported; organic sales increased 0.2%, while currency reduced sales by $205M.

• Adjusted diluted EPS rose 10% to $2.06 from $1.88; adjusted segment margin was 14.4%, down from 14.7%.

• Orders declined 4% YoY, and FY15 adjusted EPS guidance was revised to $7.55–$7.75, with a $7.65 midpoint.

Financial highlights

• Q3 net income was $285.5M versus $242.5M; reported diluted EPS was $2.02 versus $1.60.

• Q3 adjusted net income was $291.5M versus $285.0M; adjusted diluted EPS was $2.06 versus $1.88, excluding restructuring charges.

• Q3 gross profit was $789.3M versus $752.5M; gross margin was 25.0% versus 22.4%, supported by lower realignment charges, aerospace volume and mix, and lower international industrial fixed overhead.

• Nine-month operating cash flow was $791.1M, or 8.3% of sales, versus $817.5M, or 8.4%.

Outlook and guidance

• FY15 reported EPS guidance was $7.25–$7.45; adjusted EPS guidance was $7.55–$7.75. Adjusted guidance excludes $0.17/share of restructuring and $0.13/share of voluntary retirement costs.

• FY15 adjusted sales guidance: North America up 1%–2%, International down 12%–11%, Aerospace up 3%–5%, and total sales down 4%–3%.

• Adjusted segment margin guidance: North America 16.8%–16.9%, International 13.4%–13.6%, Aerospace 13.3%–13.5%, and total 14.9%–15.1%.

• Q4 adjusted EPS guidance was reduced from $2.43 to $1.86; currency, unfavorable mix and volume weighed on the outlook.

• FY15 guidance assumes a 26.5% tax rate and 145.6M diluted shares; ~ $10M of additional realignment charges were expected for the rest of FY15.