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Parker Reports Fiscal 2016 Second Quarter Results

  • Second quarter EPS $1.33 as reported, or $1.52 adjusted for business realignment
  • Sales decreased 14% with 4% due to currency, 10% organic
  • Simplification and restructuring efforts generated impressive decremental marginal return on sales of 23.2% as reported, 17.2% adjusted
  • Company maintains fiscal 2016 full-year adjusted earnings guidance

CLEVELAND, Jan. 26, 2016 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE:PH), the global leader in motion and control technologies, today reported results for the fiscal 2016 second quarter ended December 31, 2015. Fiscal 2016 second quarter sales were $2.71 billion, compared with $3.13 billion in the prior year quarter. Net income was $183.1 million, compared with $267.3 million in the second quarter of fiscal 2015. Fiscal 2016 second quarter earnings per share were $1.33, compared with $1.80 in the prior year quarter. Adjusted earnings per share were $1.52, compared with $1.84 in the prior year quarter. A reconciliation of reported to adjusted earnings per share is included with the financial tables in this news release.

“We have taken purposeful action in managing our cost structure to reflect challenging global market conditions,” said Chairman and Chief Executive Officer Tom Williams. “Continued weakness, stemming from natural resource related end markets such as oil and gas, construction, mining and agriculture, continues to impact sales and order rates. Our global teams have adapted quickly to these changes allowing us to deliver solid margin performance with decremental marginal returns of 17.2% on an adjusted basis. We are executing our previously announced restructuring actions and have made significant progress with Simplification initiatives to reduce complexity, increase speed, reduce costs and better serve our customers. We remain well positioned to weather the current downturn.”

During the quarter, the company repurchased $90 million of Parker shares, and $400 million have been repurchased year-to-date. Approximately $1.7 billion in shares have been purchased under a previously announced authorization to repurchase between $2 billion and $3 billion in shares over two years, beginning in October 2014.

Segment Results

Diversified Industrial Segment: North American second quarter sales decreased 16% to $1.2 billion and operating income was $153.6 million compared with $226.9 million in the same period a year ago. International second quarter sales decreased 16% to $1.0 billion, the majority of the decline in sales was the result of changes in foreign currency rates. International operating income was $95.4 million compared with $136.5 million in the same period a year ago.

Aerospace Systems Segment: Second quarter sales decreased 1% to $552.4 million, and operating income increased 22% to $81.8 million, compared with $66.8 million in the same period a year ago.

Orders

Parker reported a decrease in orders of 12% for the quarter ending December 31, 2015, compared with the same quarter a year ago. The company reported the following orders by business:

  • Orders decreased 15% in the Diversified Industrial North America businesses compared with the same quarter a year ago.
  • Orders decreased 10% in the Diversified Industrial International businesses compared with the same quarter a year ago.
  • Orders decreased 11% in the Aerospace Systems segment on a rolling 12-month average basis.

Outlook

For the fiscal year ending June 30, 2016, the company has maintained the midpoint and narrowed the range of guidance for earnings from continuing operations to $5.40 to $5.80 per share, or $5.90 to $6.30 per share on an adjusted basis. Fiscal year 2016 guidance is adjusted for expected business realignment expenses of approximately $0.50 per share, of which $0.30 per share relates to the company’s Simplification initiatives. Guidance also reflects an expected full year tax rate of approximately 28%.

Williams added, “We expect that market conditions will continue to be challenging through the end of fiscal 2016. Efforts to align costs accordingly and position Parker to deliver strong financial performance will continue and are reflected in our outlook. Parker team members are also working hard to further many new growth initiatives established by our new Win StrategyTM. Expanding our distribution network, commercializing new products and systems, improving the customer experience, developing services, e-Business and Internet of Things are all opportunities that we are pursuing to spur future growth and solidify our position as the leader in the motion and control industry.”

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2016 second 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 webcast 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 59 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 Orders

Orders 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 Numbers

This press release contains references to (a) segment operating margins, earnings per share and net income without the effect of business realignment expenses; and (b) the effect of business realignment expenses on forecasted earnings from continuing operations per share. The effects of business realignment expenses are removed to allow investors and the company to meaningfully evaluate changes in segment operating margin, earnings per share and net income on a comparable basis from period to period.

Forward-Looking Statements

Forward-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 - DECEMBER 31, 2015
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)Three Months Ended December 31, Six Months Ended December 31,
(Dollars in thousands except per share amounts) 2015 2014 2015 2014
Net sales$ 2,705,590 $ 3,134,993 $ 5,574,938 $ 6,404,925
Cost of sales 2,140,624 2,401,584 4,341,528 4,861,449
Gross profit 564,966 733,409 1,233,410 1,543,476
Selling, general and administrative expenses 314,666 379,804 684,880 780,644
Interest expense 34,297 27,645 70,057 48,606
Other (income), net (13,877) (17,306) (27,056) (25,675)
Income before income taxes 229,880 343,266 505,529 739,901
Income taxes 46,743 75,931 127,366 192,395
Net income 183,137 267,335 378,163 547,506
Less: Noncontrolling interests 155 83 203 165
Net income attributable to common shareholders$ 182,982 $ 267,252 $ 377,960 $ 547,341
Earnings per share attributable to common shareholders:
Basic earnings per share $ 1.35 $ 1.84 $ 2.78 $ 3.72
Diluted earnings per share$ 1.33 $ 1.80 $ 2.74 $ 3.66
Average shares outstanding during period - Basic 135,373,356 145,493,247 136,108,930 147,116,038
Average shares outstanding during period - Diluted 137,065,447 148,182,777 137,788,219 149,463,280
Cash dividends per common share $.63 $.63 $ 1.26 $ 1.11
RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE
Net income $ 183,137 $ 267,335 $ 378,163 $ 547,506
Adjustments:
Business realignment charges 25,463 6,450 41,015 11,962
Adjusted net income$ 208,600 $ 273,785 $ 419,178 $ 559,468
Earnings per diluted share$ 1.33 $ 1.80 $ 2.74 $ 3.66
Adjustments:
Business realignment charges 0.19 0.04 0.30 0.08
Adjusted earnings per diluted share$ 1.52 $ 1.84 $ 3.04 $ 3.74
BUSINESS SEGMENT INFORMATION
(Unaudited)Three Months Ended December 31, Six Months Ended December 31,
(Dollars in thousands) 2015 2014 2015 2014
Net sales
Diversified Industrial:
North America$ 1,160,774 $ 1,389,207 $ 2,447,104 $ 2,861,019
International 992,464 1,187,400 2,030,911 2,450,897
Aerospace Systems 552,352 558,386 1,096,923 1,093,009
Total$ 2,705,590 $ 3,134,993 $ 5,574,938 $ 6,404,925
Segment operating income
Diversified Industrial:
North America$ 153,581 $ 226,888 $ 366,329 $ 491,124
International 95,367 136,525 224,662 326,330
Aerospace Systems 81,764 66,817 155,767 132,166
Total segment operating income 330,712 430,230 746,758 949,620
Corporate general and administrative expenses 31,210 51,360 84,261 106,804
Income before interest and other 299,502 378,870 662,497 842,816
Interest expense 34,297 27,645 70,057 48,606
Other expense 35,325 7,959 86,911 54,309
Income before income taxes$ 229,880 $ 343,266 $ 505,529 $ 739,901
RECONCILIATION OF SEGMENT OPERATING MARGIN TO ADJUSTED SEGMENT OPERATING MARGIN
(Unaudited)
Three Months Ended Six Months Ended
December 31, 2015December 31, 2015
Operating income Margin Operating income Margin
As reported segment operating income $ 330,712 12.2%$ 746,758 13.4%
Adjustments:
Business realignment charges 34,800 56,588
Adjusted segment operating income$ 365,512 13.5%$ 803,346 14.4%
CONSOLIDATED BALANCE SHEET
(Unuaudited) December 31, June 30, December 31,
(Dollars in thousands) 2015 2015 2014
Assets
Current assets:
Cash and cash equivalents$ 1,047,494 $ 1,180,584 $ 1,075,307
Marketable securities and other investments 820,682 733,490 886,879
Trade accounts receivable, net 1,419,934 1,620,194 1,572,864
Non-trade and notes receivable 293,913 364,534 428,090
Inventories 1,279,760 1,300,459 1,453,996
Prepaid expenses 141,030 241,684 160,335
Deferred income taxes 148,198 142,147 150,301
Total current assets 5,151,011 5,583,092 5,727,772
Plant and equipment, net 1,598,185 1,664,022 1,716,489
Goodwill 2,913,065 2,942,679 3,011,894
Intangible assets, net 975,515 1,013,439 1,090,972
Other assets 1,116,315 1,091,805 1,021,272
Total assets$ 11,754,091 $ 12,295,037 $ 12,568,399
Liabilities and equity
Current liabilities:
Notes payable$ 574,302 $ 223,142 $ 242,043
Accounts payable 948,157 1,092,138 1,145,202
Accrued liabilities 736,145 894,555 817,152
Accrued domestic and foreign taxes 109,495 140,295 134,754
Total current liabilities 2,368,099 2,350,130 2,339,151
Long-term debt 2,724,860 2,723,960 2,725,510
Pensions and other postretirement benefits 1,475,351 1,699,197 1,309,477
Deferred income taxes 76,405 77,967 86,606
Other liabilities 306,655 336,214 347,514
Shareholders' equity 4,799,406 5,104,287 5,756,749
Noncontrolling interests 3,315 3,282 3,392
Total liabilities and equity$ 11,754,091 $ 12,295,037 $ 12,568,399
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)Six Months Ended December 31,
(Dollars in thousands) 2015 2014
Cash flows from operating activities:
Net income$ 378,163 $ 547,506
Depreciation and amortization 156,093 160,625
Stock incentive plan compensation 39,026 52,217
Gain on sale of businesses - (5,791)
(Gain) loss on disposal of assets (336) 8,092
Gain on sale of marketable securities (158) -
Net change in receivables, inventories, and trade payables 41,866 2,205
Net change in other assets and liabilities (255,296) (167,918)
Other, net (12,730) (58,439)
Net cash provided by operating activities 346,628 538,497
Cash flows from investing activities:
Acquisitions (net of cash of $3,814 in 2015 and $3,979 in 2014) (67,552) (18,640)
Capital expenditures (75,419) (109,781)
Proceeds from sale of plant and equipment 8,506 3,902
Proceeds from sale of businesses - 22,779
Purchases of marketable securities and other investments (575,183) (971,606)
Maturities and sales of marketable securities and other investments 527,819 475,851
Other, net (41,450) (43,239)
Net cash (used in) investing activities (223,279) (640,734)
Cash flows from financing activities:
Net payments for common stock activity (394,030) (852,524)
Net proceeds from debt 356,591 669,975
Dividends (171,707) (164,758)
Net cash (used in) financing activities (209,146) (347,307)
Effect of exchange rate changes on cash (47,293) (88,704)
Net (decrease) in cash and cash equivalents (133,090) (538,248)
Cash and cash equivalents at beginning of period 1,180,584 1,613,555
Cash and cash equivalents at end of period$ 1,047,494 $ 1,075,307
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 $5.40 to $5.80
Adjustments:
Business realignment charges.50
Adjusted forecasted earnings per diluted share $5.90 to $6.30


Contact: Media – Aidan Gormley, Director, Global Communications and Branding 216/896-3258 aidan.gormley@parker.com Financial Analysts – Robin J. Davenport, Vice President, Corporate Finance 216/896-2265 rjdavenport@parker.com

Source:Parker Hannifin Corporation