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Parker Reports Fiscal 2021 First Quarter Results

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- First quarter EPS were $2.47 as reported, or $3.07 adjusted
- First quarter total segment operating margin was 16.8% as reported, or 19.9% adjusted
- First quarter EBITDA margin was 19.5% as reported, or 20.1% adjusted
- Cash flow from operations was a first quarter record at $737.4 million, and reached 22.8% of sales
- Acquisition-related debt reduction of approximately $2 billion in the last 11 months
- Company increases fiscal 2021 full year guidance

CLEVELAND, Nov. 05, 2020 (GLOBE NEWSWIRE) -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2021 first quarter ended September 30, 2020. Fiscal 2021 first quarter sales were $3.23 billion, compared with $3.33 billion in the prior year quarter. Net income was $321.4 million, compared with $338.9 million in the first quarter of fiscal 2020. Fiscal 2021 first quarter earnings per share were $2.47, compared with $2.60 in the prior year quarter. Adjusted earnings per share were $3.07, compared with adjusted earnings per share of $3.05 in the first quarter of fiscal 2020. Fiscal year-to-date cash flow from operations was a first quarter record at $737.4 million and reached 22.8% of sales, compared with $449.1 million or 13.5% of sales in the prior year period. A reconciliation of non-GAAP measures is included in the financial tables of this press release.

“Thanks to the dedication of our global team executing The Win Strategy™, Parker continues to deliver excellent results in the midst of the ongoing challenging market conditions,” said Chairman and Chief Executive Officer, Tom Williams. “We generated record operating cash flow and impressive margins in the quarter, reflecting both the near-term measures we have put in place to manage our cost structure and the portfolio and performance actions we have taken to strengthen our business. Notably, adjusted total segment operating margin increased 110 basis points compared with the prior year to 19.9% and adjusted EBITDA margin increased 100 basis points to 20.1% in the quarter, despite an organic sales decline of 13%. During the quarter, the balance sheet was further strengthened with debt repayment of $557 million, bringing our acquisition-related debt reduction to approximately $2 billion over the last 11 months, which represents 37% of the LORD and Exotic transaction debt."

Segment Results
Diversified Industrial Segment: North American first quarter sales decreased 6% to $1.5 billion, and operating income was $268.8 million, compared with $275.2 million in the same period a year ago. International first quarter sales increased 5% to $1.1 billion, and operating income was $186.9 million, compared with $168.6 million in the same period a year ago.

Aerospace Systems Segment: First quarter sales decreased 9% to $573.2 million, and operating income was $86.8 million, compared with $123.0 million in the same period a year ago.

Parker reported the following orders for the quarter ending September 30, 2020, compared with the same quarter a year ago:

  • Orders decreased 12% for total Parker

  • Orders decreased 11% in the Diversified Industrial North America businesses

  • Orders decreased 4% in the Diversified Industrial International businesses

  • Orders decreased 25% in the Aerospace Systems Segment on a rolling 12-month average basis

Outlook
For the fiscal year ending June 30, 2021, the company has increased guidance for earnings per share to the range of $9.93 to $10.53, or $11.70 to $12.30 on an adjusted basis. Guidance assumes an organic sales decline in the range of 9% to 6%. Fiscal year 2021 guidance is adjusted on a pre-tax basis for expected business realignment expenses of approximately $60 million, costs to achieve of approximately $18 million, acquisition-related intangible asset amortization of approximately $322 million and a gain on the sale of land of approximately $101 million, which closed in October, 2020. A reconciliation of forecasted earnings per share to adjusted forecasted earnings per share is included in the financial tables of this press release.

Williams added, “Given our strong first quarter performance, we are updating our previously issued guidance but remain cautious about performance trends for the remainder of this fiscal year. While there are indicators that the worst of the economic downturn is behind us, the COVID-19 pandemic is likely to continue to create headwinds in the global environment. We are confident in our ability to perform in FY21 and in the future, driven by the Win Strategy 3.0 as our business system."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2021 first quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, at www.phstock.com. A replay of the webcast will be available on the site approximately one hour after the completion of the call and will remain available for one year. To register for e-mail notification of future events please visit www.phstock.com.

About Parker Hannifin
Parker Hannifin is a Fortune 250 global leader in motion and control technologies. For more than a century the company has been enabling engineering breakthroughs that lead to a better tomorrow. Parker has increased its annual dividend per share paid to shareholders for 64 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index. Learn more at www.parker.com or @parkerhannifin.

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 Net Income
Net income referenced in this press release is equal to net income attributable to common shareholders.

Note on Non-GAAP Financial Measures
This press release contains references to non-GAAP financial information including (a) adjusted earnings per share; (b) adjusted total segment operating margin; EBITDA margin; and adjusted EBITDA margin. The adjusted earnings per share and total segment operating margin measures are presented to allow investors and the company to meaningfully evaluate changes in earnings per share and total segment operating margin on a comparable basis from period to period. This press release also contains references to EBITDA, EBITDA margin and adjusted EBITDA margin. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Although EBITDA, EBITDA margin and adjusted EBITDA margin are not measures of performance calculated in accordance with GAAP, we believe that they are useful to an investor in evaluating the results of this quarter versus the prior period. A reconciliation of non-GAAP measures is included in the financial tables of this press release.

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. These statements may be identified from the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “should,” “could,” “potential,” “continues,” “plans,” “forecasts,” “estimates,” “projects,” “predicts,” “would,” “intends,” “expects,” “targets,” “is likely,” “will,” or the negative of these terms and similar expressions, and include all statements regarding future performance, earnings projections, events or developments. Parker cautions readers not to place undue reliance on these 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. Additionally, the actual impact of changes in tax laws in the United States and foreign jurisdictions and any judicial or regulatory interpretation thereof on future performance and earnings projections may impact the company’s tax calculations. 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: the impact of the global outbreak of COVID-19 and governmental and other actions taken in response; 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, including the integration of CLARCOR, LORD Corporation or Exotic Metals; 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 capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; 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; global competitive market conditions, including global reactions to U.S. trade policies, 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, as well as uncertainties associated with the timing and conditions surrounding the return to service of the Boeing 737 MAX. 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 - SEPTEMBER 30, 2020

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

Three Months Ended September 30,

(Dollars in thousands, except per share amounts)

2020

2019

Net sales

$

3,230,540

$

3,334,511

Cost of sales

2,384,328

2,479,741

Selling, general and administrative expenses

369,851

399,179

Interest expense

65,958

69,956

Other (income), net

(4,892

)

(47,521

)

Income before income taxes

415,295

433,156

Income taxes

93,578

94,115

Net income

321,717

339,041

Less: Noncontrolling interests

308

143

Net income attributable to common shareholders

$

321,409

$

338,898

Earnings per share attributable to common shareholders:

Basic earnings per share

$

2.50

$

2.64

Diluted earnings per share

$

2.47

$

2.60

Average shares outstanding during period - Basic

128,707,745

128,463,992

Average shares outstanding during period - Diluted

130,294,223

130,130,076

CASH DIVIDENDS PER COMMON SHARE

(Unaudited)

Three Months Ended September 30,

(Amounts in dollars)

2020

2019

Cash dividends per common share

$

0.88

$

0.88

RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE

(Unaudited)

Three Months Ended September 30,

(Amounts in dollars)

2020

2019

Earnings per diluted share

$

2.47

$

2.60

Adjustments:

Acquired intangible asset amortization expense

0.63

0.38

Business realignment charges

0.12

0.04

Lord costs to achieve

0.03

0.03

Exotic costs to achieve

0.01

Acquisition-related expenses

0.14

Tax effect of adjustments1

(0.18

)

(0.15

)

Adjusted earnings per diluted share

$

3.07

$

3.05

1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.


PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2020

RECONCILIATION OF EBITDA TO ADJUSTED EBITDA

(Unaudited)

Three Months Ended September 30,

(Dollars in thousands)

2020

2019

Net sales

$

3,230,540

$

3,334,511

Net income

$

321,717

$

339,041

Income taxes

93,578

94,115

Depreciation and amortization

148,442

109,071

Interest expense

65,958

69,956

EBITDA

629,695

612,183

Adjustments:

Business realignment charges

15,701

4,723

Lord costs to achieve

3,615

3,414

Exotic costs to achieve

332

595

Acquisition-related expenses

17,449

Adjusted EBITDA

$

649,343

$

638,364

EBITDA margin

19.5

%

18.4

%

Adjusted EBITDA margin

20.1

%

19.1

%


PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2020

BUSINESS SEGMENT INFORMATION

(Unaudited)

Three Months Ended September 30,

(Dollars in thousands)

2020

2019

Net sales

Diversified Industrial:

North America

$

1,528,111

$

1,624,605

International

1,129,251

1,078,850

Aerospace Systems

573,178

631,056

Total net sales

$

3,230,540

$

3,334,511

Segment operating income

Diversified Industrial:

North America

$

268,833

$

275,192

International

186,901

168,573

Aerospace Systems

86,766

122,980

Total segment operating income

542,500

566,745

Corporate general and administrative expenses

36,735

48,902

Income before interest expense and other expense

505,765

517,843

Interest expense

65,958

69,956

Other expense

24,512

14,731

Income before income taxes

$

415,295

$

433,156


RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN

(Unaudited)

Three Months Ended

Three Months Ended

(Dollars in thousands)

September 30, 2020

September 30, 2019

Operating
income

Operating
margin

Operating
income

Operating
margin

Total segment operating income

$

542,500

16.8

%

$

566,745

17.0

%

Adjustments:

Acquired intangible asset amortization expense

81,703

49,433

Business realignment charges

14,523

4,718

Lord costs to achieve

3,615

3,414

Exotic costs to achieve

332

595

Acquisition-related expenses

2,519

Adjusted total segment operating income

$

642,673

19.9

%

$

627,424

18.8

%


PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2020

CONSOLIDATED BALANCE SHEET

(Unaudited)

September 30

,

June 30

,

September 30

,

(Dollars in thousands)

2020

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

742,394

$

685,514

$

3,627,393

Marketable securities and other investments

33,463

70,805

282,102

Trade accounts receivable, net

1,860,324

1,854,398

1,983,242

Non-trade and notes receivable

273,991

244,870

288,762

Inventories

1,795,779

1,814,631

1,790,044

Prepaid expenses and other

163,533

214,986

166,536

Total current assets

4,869,484

4,885,204

8,138,079

Plant and equipment, net

2,292,880

2,292,735

1,880,157

Deferred income taxes

129,751

126,839

145,476

Investments and other assets

778,591

764,563

892,508

Intangible assets, net

3,743,314

3,798,913

2,693,756

Goodwill

7,971,897

7,869,935

5,818,613

Total assets

$

19,785,917

$

19,738,189

$

19,568,589

Liabilities and equity

Current liabilities:

Notes payable and long-term debt payable within one year

$

884,450

$

809,529

$

1,736,779

Accounts payable, trade

1,264,991

1,111,759

1,287,420

Accrued payrolls and other compensation

332,110

424,231

310,417

Accrued domestic and foreign taxes

196,429

195,314

188,571

Other accrued liabilities

650,243

607,540

634,141

Total current liabilities

3,328,223

3,148,373

4,157,328

Long-term debt

7,057,723

7,652,256

7,366,912

Pensions and other postretirement benefits

1,864,506

1,887,414

1,261,493

Deferred income taxes

413,891

382,528

178,454

Other liabilities

577,325

539,089

501,610

Shareholders' equity

6,528,964

6,113,983

6,096,616

Noncontrolling interests

15,285

14,546

6,176

Total liabilities and equity

$

19,785,917

$

19,738,189

$

19,568,589


PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2020

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

Three Months Ended September 30,

(Dollars in thousands)

2020

2019

Cash flows from operating activities:

Net income

$

321,717

$

339,041

Depreciation and amortization

148,442

109,071

Share incentive plan compensation

58,461

52,633

Gain on plant and equipment

(498

)

(10,269

)

(Gain) loss on marketable securities

(340

)

201

Gain on investments

(970

)

(498

)

Net change in receivables, inventories and trade payables

194,350

53,526

Net change in other assets and liabilities

4,207

(77,794

)

Other, net

12,005

(16,780

)

Net cash provided by operating activities

737,374

449,131

Cash flows from investing activities:

Acquisitions (net of cash of $8,179 in 2019)

(1,696,456

)

Capital expenditures

(42,117

)

(50,345

)

Proceeds from sale of plant and equipment

6,590

19,284

Purchases of marketable securities and other investments

(10,726

)

(159,984

)

Maturities and sales of marketable securities and other investments

49,107

26,477

Other

1,054

8,070

Net cash provided by (used in) investing activities

3,908

(1,852,954

)

Cash flows from financing activities:

Net payments for common stock activity

(21,750

)

(71,985

)

Net (payments for) proceeds from debt

(557,442

)

2,023,714

Dividends paid

(113,542

)

(113,352

)

Net cash (used in) provided by financing activities

(692,734

)

1,838,377

Effect of exchange rate changes on cash

8,332

(26,928

)

Net increase in cash and cash equivalents

56,880

407,626

Cash and cash equivalents at beginning of year

685,514

3,219,767

Cash and cash equivalents at end of period

$

742,394

$

3,627,393


PARKER HANNIFIN CORPORATION - SEPTEMBER 30, 2020

RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE

(Unaudited)

(Amounts in dollars)

Fiscal Year 2021

Forecasted earnings per diluted share

$9.93 to $10.53

Adjustments:

Business realignment charges

0.46

Costs to achieve

0.14

Acquisition-related intangible asset amortization expense

2.47

Gain on sale of land

(0.77)

Tax effect of adjustments1

(0.53)

Adjusted forecasted earnings per diluted share

$11.70 to $12.30

1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment.



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