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Parker Posts Dismal Q3 & FY13 Earnings

Zacks Equity Research

Parker-Hannifin Corporation’s(PH) fourth quarter and fiscal 2013 earnings results, which were released ahead of the opening bell today, had dismal figures to share as both earnings and revenues missed our estimates. Quarterly earnings per share were $1.78, 8.6% below the Zacks Consensus Estimate of $1.95 a share. Earnings in the quarter also declined 9.2% from $1.96 in the year-ago quarter. Earnings during the quarter were impacted by lower volumes and greater-than-expected inventory, acquisition, integration, and related expenses.

Fiscal 2013 earnings came in at $6.26 a share, which again was 2.3% below the Zacks Consensus Estimate of $6.40 and down 16.0% year over year from $7.45 a share. Fiscal 2012 earnings included an increase in domestic qualified pension expense of approximately 35 cents per share due to accounting regulations, which required the use of a lower discount rate due to market conditions. 

Total Revenue

Total revenue in the fourth quarter increased marginally by 0.5% year over year to $3.43 billion from $3.41 billion in the year-ago quarter. Weak international markets and modest returns from the American market continued to affect revenues in the quarter. However, this was almost offset by strong operational performance of the company during the quarter. Revenues fell short of the Zacks Consensus Estimate of $3.46 billion.

Segment Performance

Parker’s Industrial Salessegment comprises two sub segments - Industrial North America and Industrial International segment. Industrial North Americasegment sales declined 2.6% year over year to $1.30 billion. However, the Industrial Internationalsegment sales were up by 3.3% to $1.28 billion. Further, Parker witnessed continued declines in orders in its Industrial North America segment. During the reported quarter, Industrial North America Sales contracted 5% year over year, while orders in the Industrial International segment grew 3% year over year.

Revenues in the Aerospace segment increased 9.5% year over year to $620 million while the orders for the segment grew 3%. 

Revenues in the Climate and Industrial Controlsdecreased 16.3% year over year to $224.6 million. The segment also witnessed flat order trend for the reported quarter.

Income & Expenses

Operating income during the quarter were $3.73 billion, reflecting a 12.1% decline from $4.25 billion in the prior-year quarter. The decline was attributable to higher cost of sales and higher selling, general and administrative expenses. Therefore, the operating margin also declined 156 basis points (bps) to 10.9% from 12.5% in the prior-year quarter.

Balance Sheet and Dividend Increase

Exiting the year, cash and cash equivalents were $1.78 billion with long-term debt of $1.5 billion and a debt to capitalization ratio of 20.7% compared with 23.5% in fiscal 2012.

Further, net cash from operating activities declined 22.1% year over year to $1.2 billion due to higher working capital requirements. Capital expenditures for fiscal 213 were $265 million.


Concurent with the earnings release, the company provided fiscal 2014 guidance. Earnings from continuing operations for fiscal 2014 are expected to be in the range of $7.35 to $8.15 per share. The guidance includes an expected gain of approximately $1.50 per share associated with a previously announced joint venture agreement between Parker Aerospace and GE Aviation and expenses related to possible restructuring of approximately $100 million.

Parker’s shares carry a Zacks Rank #3 (Hold), so it may not be an ideal investment option right now. However, you may consider Zacks Rank #1 ( Strong Buy) stocks such as EnPro Industries Inc. (NPO), Gorman-Rupp Co. (GRC) and Graham Corp. (GHM).

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