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Parker-Hannifin (PH) Q3 Earnings Beat: Sales Jump, View Up

Zacks Equity Research

Parker-Hannifin Corporation PH kept its impressive streak of beating estimates alive for the seventh consecutive quarter, as its adjusted earnings of $2.11 per share for third-quarter fiscal 2017 trumped the Zacks Consensus Estimate of $1.86 by 13.4%.

The earnings figure reflected an impressive growth of 39.7% on a year-over-year basis. The year-over-year improvement in the bottom line came on the back of remarkable revenue expansion, improved margins and the revamped Win Strategy.

The company’s shares rose 1.3% at one point in pre-market trading as investors cheered the remarkable beat.

Inside the Headlines

Net sales in the fiscal third quarter jumped 10.3% year over year to $3,119 million and came ahead of the Zacks Consensus Estimate of $3,048 million. Contribution from the CLARCOR acquisition and excellent performance in the company’s Diversified Industrial segment were major growth drivers. Organic sales increased 6% year over year.

Parker-Hannifin’s adjusted total segment operating income for the reported quarter was $460.4 million, up 17.6% from the year-ago tally of $391.6 million. Orders also increased 8% in aggregate for the company.

Segmental Performance

At the Diversified Industrial segment, North American sales for the quarter increased 13% to $1,413 million. Additionally, this segment recorded 9% growth in orders on a year-over-year basis.

International Industrial, which is also classified under the Diversified Industrial segment, performed strongly as well, as it reported an 11% year-over-year increase in sales to $1,129 million. In addition to robust sales growth, orders at this segment increased 13% on a year-over-year basis.

Revenues at the Aerospace Systems segment rose 3% year over year to $577 million. However, orders at this segment were flat in the quarter under review.

In addition to strong sales growth, Parker-Hannifin achieved robust operating margins during the reported quarter as well.Adjusted segment operating margins during the reported quarter came in at 16.1%, up 140 basis points year over year. In addition to accelerated revenue growth, successful execution of the company’s Win Strategy initiatives drove margins.

Liquidity

As of Mar 31, 2017, Parker-Hannifin’s cash and cash equivalents were $819 million, down significantly from $1,034 million at the end of third-quarter fiscal 2016. Long-term debt was $5,255 million at quarter end, substantially higher than $2,652 million at the same time last year.

Acquisitions

During the quarter, Parker-Hannifin completed its most notable acquisition agreement to buy air filtration systems provider – CLARCOR Inc. – for roughly $4.3 billion in cash. CLARCOR is bringing a range of industrial air and liquid filtration products and technologies to the table, which will significantly bolster Parker-Hannifin’s filtration product suite. Moreover, this acquisition will unlock fresh recurring revenue streams for Parker-Hannifin’s Filtration Group as 80% of CLARCOR’s revenue is generated through aftermarket sales.

The company is bullish on the integration of CLARCOR with its filtration business, which will help it double sales at this unit.

Further, on Feb 1, Parker-Hannifin announced the acquisition of Helac Corporation, which specializes in the design and manufacture of helical rotary actuators. Helac also manufactures a line of attachments used in material handling and construction equipment markets.

Helac will be integrated into Parker-Hannifin’s Cylinder Division within the Hydraulics Group and its sales will be reported under Parker's Diversified Industrial segment. The addition of 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 quarters to come.

Guidance

Parker-Hannifin raised its guidance for the fiscal year ending Jun 30, 2017 for the second time. Adjusted earnings from continuing operations are now expected to come in a range of $7.70–$8.00 per share (up from previous projection of $7.05–$7.55). This guidance is adjusted for expected business realignment expenses of approximately 25 cents per share, and acquisition-related expenses of 55 cents per share, and incorporates the impact of the CLARCOR and Helac acquisitions.

Parker-Hannifin Corporation Price, Consensus and EPS Surprise

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

To Conclude

Parker-Hannifin’s overarching Win Strategy has proven to be a tried and tested growth driver for its key financials. In addition, the company’s diligent global restructuring initiatives are also proving conducive to profitability. These initiatives helped Parker-Hannifin offset weakness in some key regions, thus strengthening the company’s position in 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 believes that these initiatives will unlock further growth opportunities.

Encouragingly, this Zacks Rank #1 (Strong Buy) company has been witnessing broad-based improvements in many of its end markets and regions, indicating brighter prospects.

Zacks Rank & Stocks to Consider

Some other similarly-ranked stocks in the Manufacturing - General Industrial industry include Altra Industrial Motion Corp. AIMC, Chart Industries Inc. GTLS and DXP Enterprises, Inc. DXPE. You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial has a strong, consistent earnings surprise history, with an average of 12.5% in the trailing four quarters, beating estimates all through.

Chart Industries has a good earnings beat history, having posted two huge beats in the trailing four quarters, for a whopping average positive earnings surprise of 231.8%.

DXP Enterprises generated an average positive earnings surprise of 50.4%, driven by two massive beats in the trailing four quarters.

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