Parker-Hannifin (PH) Q2 2016 earnings summary

Executive summary

• Q2 FY16 net sales were $2,705.6M, down 13.7% reported and 9.6% organically; currency reduced sales by $139M, or 4.4%.

• Adjusted EPS was $1.52 vs. $1.84 YoY, and adjusted segment margin was 13.5% vs. 14.0%; cost actions supported a 17.2% adjusted decremental margin.

• Orders fell 12% YoY, and management expected challenging conditions through FY16 year-end with no meaningful second-half recovery assumed.

Financial highlights

• Q2 net income attributable to common shareholders was $183.0M vs. $267.3M; reported diluted EPS was $1.33 vs. $1.80, including $0.19/share of realignment charges.

• Adjusted net income was $208.6M vs. $273.8M; adjusted diluted EPS was $1.52 vs. $1.84.

• H1 net sales were $5,574.9M vs. $6,404.9M; reported diluted EPS was $2.74 vs. $3.66, and adjusted EPS was $3.04.

• Acquisitions added $10M to Q2 sales and $22M to H1 sales; currency reduced sales by $139M in Q2 and $325M in H1.

Outlook and guidance

• FY16 EPS guidance was $5.40–$5.80 reported and $5.90–$6.30 adjusted, with a $6.10 adjusted midpoint; guidance was narrowed around the same midpoint.

• FY16 sales growth guidance was -12.6% to -9.3% overall, with adjusted organic growth midpoint of -7.9% and currency expected to reduce sales by 3.4%.

• Adjusted segment margin guidance was 14.4%–14.6%; regional ranges were 16.2%–16.4% for North America, 12.2%–12.4% for International and 14.6%–14.8% for Aerospace.

• Q3 adjusted EPS midpoint was $1.40, excluding $0.17/share of realignment expenses; the FY16 tax-rate assumption was ~28%.

• Second-half organic growth outlook was reduced from -5% to -7.5%; expected restructuring savings were $70M, with further actions expected to generate ~$40M in remaining FY16 charges.