U.S. Markets closed

Parker-Hannifin (PH) Beats on Q3 Earnings, Lifts View Again

Zacks Equity Research
1 / 2

WF vs. BEN: Which Stock Should Value Investors Buy Now?

WF vs. BEN: Which Stock Is the Better Value Option?

Parker-Hannifin Corporation PH kept its impressive streak of beating estimates alive for the 11th consecutive quarter, as its third-quarter fiscal 2018 adjusted earnings of $2.80 per share trumped the Zacks Consensus Estimate of $2.62 by 6.9%.

The earnings figure was even more impressive on a year-over-year basis, reflecting an improvement of 33%. The uptrend came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.

Inside the Headlines

Net sales in the quarter under review jumped 20% year over year to a record $3,750 million and also trumped the Zacks Consensus Estimate of $3,690 million. Contribution from the CLARCOR acquisition and consistent performance in the Diversified Industrial segment were major growth drivers. Organic sales increased 8% year over year.

Parker-Hannifin’s adjusted total segment operating income for the reported quarter came in at $610.1 million, up 16.3% from the year-ago quarter’s tally of $509.9 million. Orders also increased 11% in aggregate for the company.The company witnessed order growth for the seventh consecutive quarter, mirroring improving demand in the key end markets and regions.

Segmental Performance

In the Diversified Industrial segment, North American sales for the quarter climbed 25% to $1,761.8 million, maintaining its striking momentum. Additionally, this segment recorded 11% growth in orders on a year-over-year basis.

Industrial International, which is also classified under the Diversified Industrial segment, performed strongly as well, delivering a 23% year-over-year jump in sales to $1,389.3 million. In addition to robust sales growth, orders in this segment also advanced 8% on a year-over-year basis.

Revenues in the Aerospace Systems segment charted positive growth in the quarter review and rose 4% year over year to $598.4 million. Orders grew 17% in this segment on a rolling 12-month average basis.

In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well.Adjusted segment operating margins during the quarter came in at 16.3%, expanding 20 basis points (bps) year over year. Apart from accelerated revenue growth, successful execution of the company’s Win Strategy initiatives drove margins.

 

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

 

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

 

Liquidity

As of Mar 31, 2018, Parker-Hannifin’s cash and cash equivalents were $1,089.5 million, higher than $819.6 million in the prior-year quarter. Long-term debt was $4,818.6 million at year end, lower than $5,255.2 million recorded a year ago.

Acquisitions

In third-quarter fiscal 2017, Parker-Hannifin closed its most notable acquisition agreement to buy air filtration-systems provider — CLARCOR Inc. — for roughly $4.3 billion in cash. The acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Group as 80% of CLARCOR’s revenues are generated through aftermarket sales. The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales in this unit and optimize the after-market mix of Parker-Hannifin.

Further, Parker-Hannifin announced the acquisition of Helac Corporation in 2017, which specializes in the design and manufacture of helical rotary actuators. Helac will aid Parker-Hannifin in expanding its hydraulics product portfolio and cater to customers in a wide variety of markets.

The company is currently integrating these two filtration units into its businesses. We believe that these acquisitions will unlock significant synergies and drive growth for the company in the times to come.

Guidance

Once again, Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2018. Adjusted earnings from continuing operations are projected in the range of $9.95-$10.15 per share (previous projection: $9.65-$10.05). The guidance is adjusted for expected business realignment expenses of approximately $50 million and CLARCOR acquisition-related expenses of $45 million.

To Conclude

So far, fiscal 2018 has been outstanding for Parker-Hannifin. The company’s overarching Win Strategy has proven to be a tried-and-tested growth driver for its key financials. Further, its diligent global restructuring initiatives are proving conducive to profits. These initiatives helped Parker-Hannifin offset weakness in some vital regions and in the Aerospace Systems segment as well, in turn strengthening the company’s position in the end markets.

Buoyed by the competency of the revamped Win Strategy and its strategic acquisitions, Parker-Hannifin is bullish about delivering its fundamental financial goals. The company has made impressive progress in key areas, including safety performance, customer experience, and profitable growth and expects the initiatives to unlock further growth opportunities.

Encouragingly, this company has been witnessing broad-based improvements in many of its end markets and regions, indicating brighter prospects.

Zacks Rank & Stocks to Consider

Parker-Hannifin carries a Zacks Rank #3 (Hold), at present.

Some better-ranked stocks in the same space include DXP Enterprises, Inc. DXPE, Sun Hydraulics Corporation SNHY, both sporting a Zacks Rank of 1 (Strong Buy), and IDEX Corporation IEX, carrying a Zacks rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXP Enterprises has a robust earnings surprise history, with an average beat of 189.6% over the trailing four quarters, beating estimates thrice.

Sun Hydraulics has generated four strong beats during the same time frame, for an average positive surprise of 17.7%.

IDEX has a decent earnings surprise history for the preceding four quarters, having beaten estimates all through with an average of 4.8%.

More Stock News: This Is Bigger than the iPhone!                  

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. 

Click here for the 6 trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Parker-Hannifin Corporation (PH) : Free Stock Analysis Report
 
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
 
Sun Hydraulics Corporation (SNHY) : Free Stock Analysis Report
 
IDEX Corporation (IEX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.