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What's in the Cards for Parker-Hannifin (PH) in Q2 Earnings?

Zacks Equity Research

Parker-Hannifin Corporation PH is slated to report second-quarter fiscal 2019 (ended December 2018) results on Jan 31, before the market opens.

The company pulled off average positive earnings surprise of 8.76% in the preceding four quarters. Notably, Parker-Hannifin’s first-quarter fiscal 2019 (ended September 2018) adjusted earnings of $2.84 per share outpaced the Zacks Consensus Estimate of $2.51 by 13.15%.

In the past month, the company’s shares have gained 7.9% compared with 6.9% growth recorded by the industry it belongs to.

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

Factors at Play

Parker-Hannifin’s top line has been gaining momentum on the back of consistently outstanding performance in the company’s Diversified Industrial segment, particularly in North America. Also, the company expects that strength within OEM and aftermarket business in both commercial and military markets from the Aerospace segment will drive its revenues, moving forward. Further, it expects increased sales volume, favorable market mix and benefits of Win Strategy to continue strengthening its profitability in the upcoming quarters.

Of late, Parker-Hannifin’s orders have been accelerating as well. Orders improved 5% year over year in first-quarter fiscal 2019.

Notably, the Zacks Consensus Estimate for second-quarter fiscal 2019 revenues for the North America operations of the Diversified Industrial segment is pegged at $1,641 million, reflecting an expected growth of 4.9% year over year. Revenues from Aerospace segment are also projected to be strong, with the consensus estimate pegged at $585 million. Notably, the segment reported revenues of $550 million in the year-ago quarter. On the other hand, the International operations of theDiversified Industrial segment is expected to decline 2% year over year to $1,231 million.

This apart, the company’s revamped Win Strategy and its productivity initiatives have helped it attain significant cost savings. For instance, the company’s adjusted operating margins expanded 130 basis points year over year to 17% in the first quarter of fiscal 2019. This trend is likely to continue, and get reflected in the to-be-reported quarter as well.

Although the company's realignment plan and CLARCOR acquisition might prove beneficial over the long run, it is affecting its near-term financials. For instance, in the fiscal first quarter, business-realignment expenses and CLARCOR integration cost hurt the company's adjusted earnings by 1 cent per share and 4 cents per share, respectively. The company anticipates that in second-quarter fiscal 2019, realignment expenses and CLARCOR integration cost will lower its earnings by 4 cents per share and 2 cents per share, respectively.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release their earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) for a likely earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as we will see below.

Earnings ESPParker-Hannifin has an Earnings ESP of -0.04%. The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings is currently pegged at $2.41.

Parker-Hannifin Corporation Price and EPS Surprise

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

Zacks Rank: The company’s Zacks Rank of 3, which when combined with a negative Earnings ESP, makes surprise prediction inconclusive.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space 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:

Colfax Corporation CFX has an Earnings ESP of +1.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEX Corporation IEX has an Earnings ESP of +0.24% and a Zacks Rank #3.

Nordson Corporation NDSN has an Earnings ESP of +4.82% and a Zacks Rank #3.

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