Parker-Hannifin (PH) Q4 2014 earnings summary

Executive summary

• FY14 was a transition year amid the largest restructuring program to date, with record sales of $13.216B, diluted EPS of $6.87 and adjusted EPS of $6.94.

• Orders increased YoY for four consecutive quarters; FY15 planning targeted another record year under generally stable macroeconomic conditions.

Financial highlights

• FY14 net sales rose 1.5% reported to $13.216B; sales adjusted for the GE Aviation JV rose 2.5% to $13.166B. Net income was $1.041B vs. $948.8M; diluted EPS was $6.87 vs. $6.26.

• Q4 record sales were $3.525B vs. $3.428B; reported diluted EPS was $1.98 vs. $1.78 and adjusted EPS was $2.06 vs. $1.80.

• FY14 adjusted EPS was $6.94 vs. $6.33; Q4 adjusted sales rose 4.4% excluding prior-year GE JV-related sales, with 3.8% organic growth on the adjusted basis.

• FY14 segment operating margin was 13.5% reported and 14.3% adjusted; Q4 was 14.5% reported and 15.0% adjusted.

• FY14 segment operating income was $1.790B reported and $1.892B adjusted; higher volume, favorable North America mix and restructuring savings contributed, partly offset by restructuring costs.

Outlook and guidance

• FY15 diluted EPS guidance was $7.00–$7.80 reported and $7.25–$8.05 adjusted, with a $7.65 adjusted midpoint; adjusted guidance excludes expected restructuring costs of $0.25 per share.

• FY15 adjusted sales growth guidance: North America 3%–7%, International 1%–4%, Aerospace 2%–3%, and total 2%–5%; currency was expected to add 0.4%, with no acquisition carryover assumed.

• FY15 adjusted segment margin guidance: North America 16.5%–16.9%, International 14.7%–15.7%, Aerospace 13.1%–13.9%, and total 15.2%–15.9%, with a 15.6% total midpoint.

• Guidance included $490M corporate G&A, interest and other expense, a 29.0% tax rate and 151.4M diluted shares; adjusted EPS excludes ~$50M of restructuring costs, with estimated pre-tax savings of $23M.

• Adjusted EPS was expected to be 41% weighted to H1 and 59% to H2; Q1 midpoint was $1.64, excluding $0.07 of restructuring costs. “16 by 16” margins remained a long-term aspiration, not FY16 guidance.