Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - PARKER HANNIFIN CORP | exhibit9911q17.htm |
| 8-K - 8-K - PARKER HANNIFIN CORP | form8-k1qfy17.htm |
1st Quarter Fiscal Year 2017
Earnings Release
Parker Hannifin Corporation
October 21, 2016
Exhibit 99.2
Forward-Looking Statements and
Non-GAAP Financial Measures
Safe Harbor 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. All statements regarding future performance, earnings
projections, events or developments are forward-looking 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. 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: 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; 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; the ability to implement successfully the company's capital allocation initiatives; increases in raw material costs that cannot be recovered in
product pricing; the company's ability to manage costs related to insurance and employee retirement and health care benefits; 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; competitive market conditions 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. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless
otherwise required by law.
This presentation reconciles (a) sales amounts reported in accordance with U.S. GAAP to sales amounts adjusted to remove the effects of acquisitions
and the effects of currency exchange rates, (b) cash flow from operating activities and cash flow from operating activities as a percent of sales in
accordance with U.S. GAAP to cash flow from operating activities and cash flow from operating activities as a percent of sales without the effect of
discretionary pension plan contributions, (c) segment operating income, marginal return on sales (MROS), defined as the change in segment operating
income divided by the change in sales, and operating margins reported in accordance with U.S. GAAP to segment operating income, MROS and operating
margins without the effect of business realignment charges and, (d) actual and forecast earnings per diluted share reported in accordance with U.S. GAAP
to actual and forecast earnings per diluted share without the effect of business realignment charges. The effects of acquisitions, currency exchange rates,
discretionary pension plan contributions, business realignment charges are removed to allow investors and the company to meaningfully evaluate changes
in sales, and cash flow from operating activities as a percent of sales, segment operating income, operating margins and earnings per diluted share on a
comparable basis from period to period. Full year adjusted guidance removes business realignment charges.
Please visit www.PHstock.com for more information
2
Agenda
3
• Chairman & CEO Comments
• Results & Outlook
• Questions & Answers
Chairman and CEO Comments
4
1st Quarter FY2017
Recordable Accident Reduction of 35% in the First Quarter
First Quarter Sales of $2.74B, Orders Turn Positive
As Reported Earnings per Share of $1.55 ($1.61 Adjusted)
Impressive Margin & Decremental MROS and Cash Flow Performance
Full Year FY2017 Guidance
Sales Essentially Flat for the Year, Increased Earnings
Holding FY17 EPS Guidance Midpoint of $6.50 As Reported, $6.75 Adjusted
Realignment Expenses of $48 million or $0.25 per share
Win Strategy Execution
Meaningful Progress Across our Strategic Initiatives
Confident in Achieving our FY20 Financial Objectives
Diluted Earnings Per Share
1st Quarter FY2017
5
*Adjusted for Business Realignment Charges
Influences on Adjusted Earnings Per Share
1st Quarter FY2017 vs. 1st Quarter FY2016
6
*Adjusted for Business Realignment Charges
Sales & Segment Operating Margin
Total Parker
7
$ in millions 1st Quarter
FY2017
%
Change FY2016
Sales
As Reported 2,743$ (4.4)% 2,869$
Acquisitions 9 0.3 %
Currency (4) (0.1)%
Organic Sales 2,738$ (4.6)%
FY2017
% of
Sales FY2016
% of
Sales
Segment Operating Margin
As Reported 411$ 15.0 % 416$ 14.5 %
Business Realignment 11 22
Adjusted 422$ 15.4 % 438$ 15.3 %
Sales & Segment Operating Margin
Diversified Industrial North America
8
$ in millions 1st Quarter
FY2017
%
Change FY2016
Sales
As Reported 1,167$ (9.3)% 1,286$
Acquisitions - - %
Currency (4) (0.3)%
Organic Sales 1,171$ (9.0)%
FY2017
% of
Sales FY2016
% of
Sales
Segment Operating Margin
As Reported 201$ 17.2 % 213$ 16.5 %
Business Realignment 4 8
Adjusted 205$ 17.5 % 221$ 17.2 %
Sales & Segment Operating Margin
Diversified Industrial International
9
$ in millions 1st Quarter
FY2017
%
Change FY2016
Sales
As Reported 1,015$ (2.3)% 1,038$
Acquisitions 9 0.9 %
Currency - - %
Organic Sales 1,006$ (3.2)%
FY2017
% of
Sales FY2016
% of
Sales
Segment Operating Margin
As Reported 137$ 13.5 % 129$ 12.5 %
Business Realignment 7 12
Adjusted 144$ 14.2 % 141$ 13.6 %
Sales & Segment Operating Margin
Aerospace Systems
10
$ in millions 1st Quarter
FY2017
%
Change FY2016
Sales
As Reported 561$ 3.1 % 545$
Acquisitions - - %
Currency - - %
Organic Sales 561$ 3.1 %
FY2017
% of
Sales FY2016
% of
Sales
Segment Operating Margin
As Reported 73$ 13.1 % 74$ 13.6 %
Business Realignment - 2
Adjusted 73$ 13.1 % 76$ 13.9 %
Order Rates
11
Excludes Acquisitions, Divestitures & Currency
3-month year-over-year comparisons of total dollars, except Aerospace Systems
Aerospace Systems is calculated using a 12-month rolling average
Sep 2016 Jun 2016 Sep 2015 Jun 2015
Total Parker 2 %+ 1 %- 11 %- 9 %-
Diversified Industrial North America 4 %- 10 %- 12 %- 9 %-
Diversified Industrial International 3 %+ 3 %+ 8 %- 5 %-
Aerospace Systems 14 %+ 14 %+ 16 %- 14 %-
Cash Flow from Operating Activities
FY2017 Q1
12
*Adjusted for Discretionary Pension Plan Contribution
1st Quarter Full Year
FY 2017 % of Sales FY 2016 % of Sales
As Reported Cash Flow From Operating Activities 114$ 4.2% 20$ 0.7%
Discretionary Pension Plan Contribution 220$ 200$
Adjusted Cash Flow From Operating Activities 334$ 12.2% 220$ 7.7%
FY2017 Guidance
EPS Midpoint: $6.50 As Reported, $6.75 Adjusted
13
Expected FY17 Adjusted Segment Operating Margins exclude FY17 Business Realignment Charges
Expected FY17 Adjusted Earnings Per Share excludes FY17 Business Realignment Charges
Sales Growth vs. Prior Year
Diversified Industrial North America
Diversified Industrial International
Aerospace Systems
Total Parker
Segment Operating Margins As Reported Adjusted
Diversified Industrial North America 16.9% - 17.3% 17.3% - 17.7%
Diversified Industrial International 12.4% - 12.8% 13.1% - 13.5%
Aerospace Systems 14.8% - 15.2% 14.9% - 15.3%
Total Parker 14.8% - 15.2% 15.2% - 15.6%
Below the Line Items
Corporate General & Administrative Expense, Interest and Other
Tax Rate
Full Year
Shares
Diluted Shares Outstanding
Earnings Per Share As Reported Adjusted
Range $6.15 - $6.85 $6.40 - $7.10
(5.1%) - (1.1%)
1.5% - 5.5%
1.1% - 3.1%
(1.5%) - 2.1%
$478 M
28.5%
135.5 M
FY2017 Guidance
Reconciliation to Prior Guidance
14
*Adjusted for Business Realignment Charges
15
Appendix
• Consolidated Statement of Income
• Reconciliation of EPS
• Business Segment Information
• Consolidated Balance Sheet
• Consolidated Statement of Cash Flows
• Reconciliation of Cash Flow from Operations to Adjusted Cash
Flow from Operations
• Reconciliation of Net Income and MROS
• Reconciliation of Forecasted Segment Operating Margins and EPS
• Supplemental Sales Information – Global Technology Platforms
Consolidated Statement of Income
17
(Unaudited) Three Months Ended September 30,
(Dollars in thousands except per share amounts) 2016 2015
Net sales 2,743,131$ 2,869,348$
Cost of sales 2,106,006 2,200,904
Gross profit 637,125 668,444
Selling, general and administrative expenses 322,969 370,214
Interest expense 34,148 35,760
Other (income), net (12,237) (13,179)
Income before income taxes 292,245 275,649
Income taxes 82,007 80,623
Net income 210,238 195,026
Less: Noncontrolling interests 109 48
Net income attributable to common shareholders 210,129$ 194,978$
Earnings per share attributable to common shareholders:
Basic earnings per share 1.57$ 1.42$
Diluted earnings per share 1.55$ 1.41$
Average shares outstanding during period - Basic 133,679,378 136,844,504
Average shares outstanding during period - Diluted 135,825,658 138,574,908
Cash dividends per common share .63$ .63$
Reconciliation of EPS
18
(Unaudited)
(Amounts in dollars) Three Months Ended September 30,
2016 2015
Earnings per diluted share 1.55$ 1.41$
Adjustments:
Business realignment charges 0.06 0.11
Adjusted earnings per diluted share 1.61$ 1.52$
Business Segment Information
19
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) 2016 2015
Net sales
Diversif ied Industrial:
North America 1,166,971$ 1,286,330$
International 1,014,923 1,038,447
Aerospace Systems 561,237 544,571
Total 2,743,131$ 2,869,348$
Segment operating income
Diversif ied Industrial:
North America 200,611$ 212,748$
International 137,196 129,295
Aerospace Systems 73,281 74,003
Total segment operating income 411,088 416,046
Corporate general and administrative expenses 31,034 53,051
Income before interest and other expense 380,054 362,995
Interest expense 34,148 35,760
Other expense 53,661 51,586
Income before income taxes 292,245$ 275,649$
Consolidated Balance Sheet
20
(Unaudited) September 30, June 30, September 30,
(Dollars in thousands) 2016 2016 2015
Assets
Current assets:
Cash and cash equivalents 1,393,850$ 1,221,653$ 974,268$
Marketable securities and other investments 746,708 882,342 815,483
Trade accounts receivable, net 1,498,384 1,593,920 1,561,054
Non-trade and notes receivable 250,520 232,183 315,943
Inventories 1,247,972 1,173,329 1,320,204
Prepaid expenses 144,444 104,360 196,917
Total current assets 5,281,878 5,207,787 5,183,869
Plant and equipment, net 1,562,933 1,568,100 1,632,803
Deferred income taxes 495,708 605,155 381,737
Goodw ill 2,910,765 2,903,037 2,947,955
Intangible assets, net 901,939 922,571 1,003,386
Other assets 817,691 827,492 811,012
Total assets 11,970,914$ 12,034,142$ 11,960,762$
Liabilities and equity
Current liabilities:
Notes payable 595,956$ 361,787$ 630,620$
Accounts payable 1,017,905 1,034,589 1,014,265
Accrued liabilities 766,849 841,915 774,145
Accrued domestic and foreign taxes 113,528 127,597 126,487
Total current liabilities 2,494,238 2,365,888 2,545,517
Long-term debt 2,653,008 2,652,457 2,701,098
Pensions and other postretirement benefits 1,806,366 2,076,143 1,480,466
Deferred income taxes 55,079 54,395 66,062
Other liabilities 311,634 306,581 312,868
Shareholders' equity 4,647,281 4,575,255 4,851,518
Noncontrolling interests 3,308 3,423 3,233
Total liabilities and equity 11,970,914$ 12,034,142$ 11,960,762$
Consolidated Statement of Cash Flows
21
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) 2016 2015
Cash flows from operating activities:
Net income 210,238$ 195,026$
Depreciation and amortization 75,333 78,222
Stock incentive plan compensation 35,818 35,381
Gain on sale of plant and equipment (681) (1,071)
Gain on sale of marketable securities (167) (54)
Net change in receivables, inventories, and trade payables 59,690 (35,163)
Net change in other assets and liabilities (361,999) (250,118)
Other, net 95,700 (2,284)
Net cash provided by operating activities 113,932 19,939
Cash flows from investing activities:
Acquisitions (net of cash of $1,760 in 2016 and $3,814 in 2015) (29,927) (67,552)
Capital expenditures (32,526) (38,681)
Proceeds from sale of plant and equipment 4,498 3,847
Purchases of marketable securities and other investments (189,654) (430,533)
Maturities and sales of marketable securities and other investments 291,372 371,766
Other, net 1,450 (40,273)
Net cash provided by (used in) investing activities 45,213 (201,426)
Cash flows from financing activities:
Net payments for common stock activity (131,738) (319,435)
Net proceeds from debt 231,948 404,787
Dividen s (84,749) (85,987)
Net cash provided by (used in) financing activities 15,461 (635)
Effect of exchange rate changes on cash (2,409) (24,194)
Net increase (decrease) in cash and cash equivalents 172,197 (206,316)
Cash and cash equivalents at beginning of period 1,221,653 1,180,584
Cash and cash equivalents at end of period 1,393,850$ 974,268$
Reconciliation of Cash Flow from
Operations to Adjusted Cash Flow from
Operations
22
(Unaudited)
(Dollars in thousands) Three Months
Ended
September 30,
2016
Three Months
Ended
September 30,
2015
Percent of sales Percent of sales
As reported cash flow from operations 113,932$ 4.2% 19,939$ 0.7%
Discretionary pension contribution 220,000 200,000
Adjusted cash flow from operations 333,932$ 12.2% 219,939$ 7.7%
Reconciliation of Net Income and MROS
23
(Unaudited)
(Dollars in thousands) Three Months Ended September 30,
2016 2015
As Reported Net Income 210,238$ 195,026$
Business Realignment Charges 7,844 15,552
Adjusted Net Income 218,082$ 210,578$
Net Sales 2,743,131$ 2,869,348$
As Reported S gment Operating Income 411,088$ 416,046$
Business Realignment Charges 10,745 21,788
Adjusted Segment Operating Income 421,833$ 437,834$
As Reported MROS* -3.9%
Change in Business Realignment Charges as % Sales -8.7%
Adjusted MROS* -12.7%
*MROS = change in operating income/change in sales
Reconciliation of Forecasted Segment
Operating Margins and EPS
24
(Unaudited)
(Amounts in dollars)
Fiscal Year
2017
Forecasted earnings per diluted share $6.15 to $6.85
Adjustments:
Business realignment charges .25
Adjusted forecasted earnings per diluted share $6.40 to $7.10
(Unaudited)
Fiscal Year 2017
Forecasted As Reported Diversif ied Industrial North America Operating Margin 16.9% - 17.3%
Forecasted Segment Business Realignment Charges as % Net Sales 0.4%
Forecasted Adjusted Diversif ied Industrial North America Operating Margin 17.3% - 17.7%
Forecasted As Reported Diversif ied Industrial International Operating Margin 12.4% - 12.8%
Forecasted Segment Business Realignment Charges as % Net Sales 0.7%
Forecast d Adjusted Diversif ied Industrial International Operating Margin 13.1% - 13.5%
Forecasted As Reported Aerospace Systems Operating Margin 14.8% - 15.2%
Forecasted Segment Business Realignment Charges as % Net Sales 0.1%
Forecasted Adjusted Aerospace Systems Operating Margin 14.9% - 15.3%
Forecasted As Reported Total Parker Operating Margin 14.8% - 15.2%
Forecasted Segment Business Realignment Charges as % Net Sales 0.4%
Forecasted Adjusted Total Parker Operating Margin 15.2% - 15.6%
Supplemental Sales Information
Global Technology Platforms
25
(Unaudited) Three Months Ended Sept 30,
(Dollars in thousands) 2016 2015
Net sales
Diversif ied Industrial:
Motion Systems 741,650$ 802,495$
Flow and Process Control 824,314 881,911
Filtration and Engineered Materials 615,930 640,371
Aerospace Systems 561,237 544,571
Total 2,743,131$ 2,869,348$