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Is a Beat in Store for Parker-Hannifin (PH) in Q2 Earnings?

Zacks Equity Research

Parker-Hannifin Corporation PH is scheduled to report second-quarter fiscal 2018 results before the opening bell on Feb 1.

Parker-Hannifin has an excellent earnings surprise history, with an average positive surprise of 16.6% in the trailing four quarters. The company recorded its ninth consecutive earnings beat in the last reported quarter, surpassing estimates by 10.9%. In the to-be-reported quarter, the company is expected to report strong revenues in Diversified Industrial segment business, which constitutes a significant portion of total revenues.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Parker-Hannifin has benefited tremendously from the global restructuring initiatives undertaken over the past few quarters. The initiatives helped combat weakness in some key regions and also served to strengthen its position in end markets. Moreover, the company is streamlining business and corporate functions as well as removing complex bureaucracy from its organizational structure to create a “leaner” frame. The company has also devised a complimentary business realignment action, which when combined with the simplification initiative, is likely to strengthen the manufacturing footprint, going forward.

Notably, the Zacks Consensus Estimate for revenues from the Diversified Industrial — North America segment in the to-be-reported quarter currently remains high at $1,557 million, reflecting growth of 38.9% year over year. Revenues from Industrial International segment are also anticipated to be strong, with the estimate standing at $1,245 million, compared with reported revenues of $1,006 million in the year ago quarter. Further, the Aerospace segment is anticipated to rise 2.8% year over year to $559 million.

Separately, the company’s ardent lookout for strategic acquisitions has enabled it to strengthen core business. The company’s recent major investments including the CLARCOR buyout has reinforced the company’s filtration product suite, consequently driving recurring revenue growth. Further, other bolt-on acquisitions including Arnold Jäger Holding GmbH‘s operating units, President Engineering Group Limited and Helac Corporation are anticipated to prove conductive to its top-line growth, in the upcoming quarters as well.

This apart, the company’s revamped Win Strategy along with a host of simplification initiatives has helped it attain significant cost savings and expand margins. For instance, the company achieved strong adjusted segment operating margins of 16% in the fiscal first quarter, expanding 60 basis points year over year. This trend is likely to continue for the soon-to-be-reported quarter as well.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Parker-Hannifin in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is -0.52% as the Most Accurate estimate is pegged at $2.05, lower than the Zacks Consensus Estimate of $2.06. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Parker-Hannifin Corporation Price and EPS Surprise

Parker-Hannifin Corporation Price and EPS Surprise | Parker-Hannifin Corporation Quote

Zacks Rank: Parker-Hannifin has a Zacks Rank #2, which increases the predictive power of the ESP. However, the company’s ESP of -0.52% makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Deere & Company DE has an Earnings ESP of +3.29% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kennametal Inc. KMT has an Earnings ESP of +2.21% and a Zacks Rank #2.

Milacron Holdings Corp. MCRN has an Earnings ESP of +1.52% and a Zacks Rank #2.

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Kennametal Inc. (KMT) : Free Stock Analysis Report
 
Deere & Company (DE) : Free Stock Analysis Report
 
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Milacron Holdings Corp. (MCRN) : Free Stock Analysis Report
 
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