Attached files
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| 8-K - 8-K - PARKER HANNIFIN CORP | coverform8-k1qfy18.htm |
| EX-99.1 - EXHIBIT 99.1 - PARKER HANNIFIN CORP | exhibit9911qfy18.htm |
1st Quarter Fiscal Year 2018
Earnings Release
Parker Hannifin Corporation
November 2, 2017
Exhibit 99.2
Forward-Looking Statements and
Non-GAAP Financial Measures
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 use of forward-looking terminology such as “anticipates,” “believes,” “may,” “should,” “could,”
“potential,” “continues,” “plans,” “forecasts,” “estimates,” “projects,” “predicts,” “would,” “intends,” “anticipates,” “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. 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 activit ies, 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 and earnings projections are: economic conditions within the company’s key 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 of the company are, as applicable: 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; 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; 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 organic sales, which are 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) as reported and forecast segment
operating income and operating margins reported in accordance with U.S. GAAP to as reported and forecast segment operating income and operating margins without the effect of
business realignment charges and CLARCOR costs to achieve, (d) Below the Line Items reported in accordance with U.S. GAAP to Below the Line Items without the effect of a loss
related to the sale of an investment, and (e) as reported and forecast earnings per diluted share reported in accordance with U.S. GAAP to as reported and forecast earnings per diluted
share without the effect of business realignment charges, CLARCOR costs to achieve and a loss related to the sale of an investment. This presentation also contains references to
EBITDA and adjusted EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before business realignment
charges, CLARCOR costs to achieve, and a loss related to the sale of an investment. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance
with GAAP, we believe that it is useful to an investor in evaluating the results of this quarter versus one year ago. The effects of acquisitions, currency exchange rates, discretionary
pension plan contributions, business realignment charges, CLARCOR costs to achieve and a loss related to the sale of an investment 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, Below the Line Items and earnings
per diluted share on a comparable basis from period to period. Full year adjusted guidance removes business realignment charges, CLARCOR costs to achieve and a loss related to the
sale of an investment.
Please visit www.PHstock.com for more information
2
Agenda
3
• Chairman & CEO Comments
• Results & Outlook
• Questions & Answers
Chairman and CEO Comments
4
Summary
Broad based increase in orders
Growth greater than industrial production growth
Win Strategy generating improvements in growth and margins
Started FY18 well - Expect a record year ahead
Great Start to Fiscal Year - Q1 FY 2018
Safety - 24% Reduction in recordable injuries
Sales a first quarter record up 23% - organic growth above 7%
Order rates increased at double digits – highest since Q4 FY11
Segment operating margins continued improvement
EPS - first quarter record, + 36% as reported, +40% adjusted
Going Forward
Increased adjusted EPS Guide by 60 cents – record year in FY18
Continue Driving Win Strategy
Diluted Earnings Per Share
1st Quarter FY2018
5
*Adjusted for Business Realignment Charges, Clarcor Costs to Achieve, Loss Related to Sale of Investment
** Adjusted for Business Realignment Charges
Influences on Adjusted Earnings Per Share
1st Quarter FY2018 vs. 1st Quarter FY2017
6
*Adjusted for Business Realignment Charges, Clarcor Costs to Achieve, Loss related to sale of investment
** Adjusted for Business Realignment Charges
Sales & Segment Operating Margin
Total Parker
7
$ in millions 1st Quarter
FY2018
%
Change FY2017
Sales
As Reported 3,365$ 22.7 % 2,743$
Acquisitions 382 13.9 %
Currency 38 1.4 %
Organic Sales 2,945$ 7.4 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 525$ 15.6 % 411$ 15.0 %
Business Realignment 8 11
CLARCOR Costs to Achieve 6
Adjusted 539$ 16.0 % 422$ 15.4 %
Sales & Segment Operating Margin
Diversified Industrial North America
8
$ in millions 1st Quarter
FY2018
%
Change FY2017
Sales
As Reported 1,595$ 36.7 % 1,167$
Acquisitions 308 26.4 %
Currency 7 0.6 %
Organic Sales 1,280$ 9.7 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 256$ 16.1 % 201$ 17.2 %
Business Realignment 5 4
CLARCOR Costs to Achieve 5
Adjusted 266$ 16.7 % 205$ 17.5 %
Sales & Segment Operating Margin
Diversified Industrial International
9
$ in millions 1st Quarter
FY2018
%
Change FY2017
Sales
As Reported 1,239$ 22.0 % 1,015$
Acquisitions 74 7.3 %
Currency 30 3.0 %
Organic Sales 1,135$ 11.7 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 192$ 15.5 % 137$ 13.5 %
Business Realignment 3 7
CLARCOR Costs to Achieve 0
Adjusted 195$ 15.7 % 144$ 14.2 %
Sales & Segment Operating Margin
Aerospace Systems
10
$ in millions 1st Quarter
FY2018
%
Change FY2017
Sales
As Reported 531$ (5.4)% 561$
Acquisitions - - %
Currency 1 0.1 %
Organic Sales 530$ (5.5)%
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 77$ 14.6 % 73$ 13.1 %
Business Realignment 1
Adjusted 78$ 14.7 % 73$ 13.1 %
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 2017 Jun 2017 Sep 2016 Jun 2016
Total Parker 11 %+ 8 %+ 2 %+ 1 %-
Diversified Industrial North America 10 %+ 10 %+ 4 %- 10 %-
Diversified Industrial International 15 %+ 10 %+ 3 %+ 3 %+
Aerospace Systems 4 %+ 1 %+ 14 %+ 14 %+
Cash Flow from Operating Activities
FY2018 Q1
12
*Adjusted for Discretionary Pension Plan Contribution
1st Quarter Full Year
FY 2018 % of Sales FY 2017 % of Sales
As Reported Cash Flow From Operating Activities 239$ 7.1% 114$ 4.2%
Discretionary Pension Plan Contribution 220$
Adjusted Cash Flow From Operating Activities 239$ 7.1% 334$ 12.2%
FY2018 Guidance
EPS Midpoint: $8.75 As Reported, $9.40 Adjusted
13
*Expected FY18 Adjusted Segment Operating Margins exclude FY18 Business Realignment Charges, Clarcor Costs to Achieve
**Expected FY18 Adjusted Earnings Per Share excludes FY18 Business Realignment Charges, Clarcor Costs to Achieve, Loss
Related to Sale of an Investment
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 16.2% - 16.6% 17.0% - 17.4%
Diversified Industrial International 14.1% - 14.5% 15.2% - 15.6%
Aerospace Systems 15.4% - 15.8% 15.5% - 15.9%
Total Parker 15.3% - 15.7% 16.1% - 16.5%
Below the Line Items
Corporate General & Administrative Expense, Interest and Other $513 M $499 M
Tax Rate
Full Year
Shares
Diluted Shares Outstanding
Earnings Per Share As Reported Adjusted**
Range $8.45 - $9.05 $9.10 - $9.70
135.6 M
28%
19.4% - 23.4%
14.9% - 18.9%
0.3% - 2.3%
14.2% - 17.8%
FY2018 Guidance
Reconciliation to Prior Guidance
14
*Adjusted for Business Realignment Charges, Clarcor Costs to Achieve, Loss related to sale of investment
**Adjusted for Business Realignment Charges, Clarcor Costs to Achieve
15
Appendix
• Consolidated Statement of Income
• Adjusted Amounts Reconciliation
• Reconciliation of EPS
• Business Segment Information
• Reconciliation of Total Segment Operating Margin to Adjusted Total
Segment Operating Margin
• Reconciliation of EBITDA to Adjusted EBITDA
• Consolidated Balance Sheet
• Consolidated Statement of Cash Flows
• Reconciliation of Forecasted EPS
• Supplemental Sales Information – Global Technology Platforms
Consolidated Statement of Income
17
(Unaudited) Three Months Ended September 30,
(Dollars in thousands except per share amounts) 2017 2016
Net sales 3,364,651$ 2,743,131$
Cost of sales 2,532,878 2,106,006
Selling, general and administrative expenses 401,672 322,969
Interest expense 53,555 34,148
Other expense (income), net 2,244 (12,237)
Income before income taxes 374,302 292,245
Income taxes 88,767 82,007
Net income 285,535 210,238
Less: Noncontrolling interests 138 109
Net income attributable to common shareholders 285,397$ 210,129$
Earnings per share attributable to common shareholders:
Basic earnings per share 2.14$ 1.57$
Diluted earnings per share 2.10$ 1.55$
Average shares outstanding during period - Basic 133,176,964 133,679,378
Average shares outstanding during period - Diluted 135,794,270 135,825,658
Cash dividends per common share .66$ .63$
Adjusted Amounts Reconciliation
18
FIRST QUARTER FY 2018 U.S. GAAP TO ADJUSTED AMOUNTS RECONCILIATION
SEGMENTS
As Reported Business Costs to Loss Related to Adjusted
Sep-17 Realignment Achieve Sale of Investment Sep-17
Segment Operating Income
Industrial:
North America 256,027 4,587 5,506 266,120
International 191,791 2,876 294 194,961
Aerospace 77,434 763 78,197
Total segment operating income 525,252 (8,226) (5,800) 539,278
Corporate administration 41,350 41,350
Income before interest expense and other 483,902 (8,226) (5,800) 497,928
Interest expense 53,555 53,555
Other expense 56,045 13,777 42,268
Income before income taxes 374,302 (8,226) (5,800) (13,777) 402,105
FIRST QUARTER FY 2018
FIRST QUARTER 2018 U.S. GAAP TO ADJUSTED AMOUNTS RECONCILIATION
INCOME STATEMENT
As Reported Business Costs to Loss Related to Adjusted
Sep-17 Realignment Achieve Sale of Investment Sep-17
Net sales 3,364,651 3,364,651
Cost of sales 2,532,878 5,320 3,376 2,524,182
Gross profit 831,773 (5,320) (3,376) 840,469
Selling, general and administrative expenses 401,672 2,906 2,424 396,342
Interest expense 53,555 53,555
Other expense (income), net 2,244 13,777 (11,533)
Income before income taxes 374,302 (8,226) (5,800) (13,777) 402,105
Income taxes 88,767 2,443 1,723 4,092 97,025
Net income 285,535 (5,783) (4,077) (9,685) 305,080
L ss: Noncontrolling interests 138 138
Net income attributable to common shareholders 285,397 (5,783) (4,077) (9,685) 304,942
EPS attributable to common shareholders:
Diluted earnings per share 2.10 (0.04) (0.03) (0.07) 2.24
FIRST QUARTER FY 2018
Reconciliation of EPS
19
(Unaudited)
(Amounts in dollars) Three Months Ended September 30,
2017 2016
Earnings per diluted share 2.10$ 1.55$
Adjustments:
Loss on sale of investment 0.07 -
Business realignment charges 0.04 0.06
Clarcor costs to achieve 0.03 -
Adjusted earnings per diluted share 2.24$ 1.61$
Business Segment Information
20
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) 2017 2016
Net sales
Diversif ied Industrial:
North America 1,594,691$ 1,166,971$
International 1,238,774 1,014,923
Aerospace Systems 531,186 561,237
Total 3,364,651$ 2,743,131$
Segment operating income
Diversif ied Industrial:
North America 256,027$ 200,611$
International 191,791 137,196
Aerospace Systems 77,434 73,281
Total segment operating income 525,252 411,088
Corporate general and administrative expenses 41,350 31,034
Income before interest and other expense 483,902 380,054
Interest expense 53,555 34,148
Other expense 56,045 53,661
Income before income taxes 374,302$ 292,245$
21
Reconciliation of Total Segment Operating
Margin to Adjusted Total Segment
Operating Margin
(Unaudited)
(Dollars in thousands)
Three Months
Ended
September 30,
2017
Three Months
Ended
September 30,
2016
Operating margin Operating margin
Total segment operating income 525,252$ 15.6% 411,088$ 15.0%
Adjustments:
Business realignment charges 8,226 10,745
Clarcor costs to achieve 5,800 -
Adjusted total segment operating income 539,278$ 16.0% 421,833$ 15.4%
22
Reconciliation of EBITDA to Adjusted
EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30, 2017
Three Months Ended
September 30, 2016
Net sales 3,364,651$ 2,743,131$
Earnings before income taxes 374,302$ 292,245$
Depreciation and amortization 116,107 75,333
Interest expense 53,555 34,148
EBITDA 543,964 401,726
Loss on sale of investment 13,777 -
Business realignment charges 8,226 10,745
Clarcor costs to achieve 5,800 -
Adjusted EBITDA 571,767$ 412,471$
Adjusted EBITDA margin 17.0% 15.0%
Consolidated Balance Sheet
23
(Unaudited) September 30, June 30, September 30,
(Dollars in thousands) 2017 2017 2016
Assets
Current assets:
Cash and cash equivalents 874,766$ 884,886$ 1,393,850$
Marketable securities and other investments 99,792 39,318 746,708
Trade accounts receivable, net 1,922,288 1,930,751 1,498,384
Non-trade and notes receivable 266,421 254,987 250,520
Inventories 1,707,001 1,549,494 1,247,972
Prepaid expenses 134,350 120,282 144,444
Total current assets 5,004,618 4,779,718 5,281,878
Plant and equipment, net 1,962,846 1,937,292 1,562,933
Deferred income taxes 35,194 36,057 495,708
Goodw ill 5,679,239 5,586,878 2,910,765
Intangible assets, net 2,215,297 2,307,484 901,939
Other assets 834,085 842,475 817,691
Total assets 15,731,279$ 15,489,904$ 11,970,914$
Liabilities and equity
Current liabilities:
Notes payable 1,144,054$ 1,008,465$ 595,956$
Accounts payable 1,304,260 1,300,496 1,017,905
Accrued liabilities 845,524 933,762 766,849
Accrued domestic and foreign taxes 173,286 153,137 113,528
Total current liabilities 3,467,124 3,395,860 2,494,238
Long-term debt 4,788,147 4,861,895 2,653,008
Pensions and other postretirement benefits 1,391,820 1,406,082 1,806,366
Deferred income taxes 212,334 221,790 55,079
Other liabilities 341,195 336,931 311,634
Shareholders' equity 5,524,940 5,261,649 4,647,281
Noncontrolling interests 5,719 5,697 3,308
Total liabilities and equity 15,731,279$ 15,489,904$ 11,970,914$
Consolidated Statement of Cash Flows
24
(Unaudited) Three Months Ended September 30,
(Dollars in thousands) 2017 2016
Cash flows from operating activities:
Net income 285,535$ 210,238$
Depreciation and amortization 116,107 75,333
Stock incentive plan compensation 43,211 35,818
(Gain) on disposal of assets (256) (681)
(Gain) on sale of marketable securities - (167)
Loss on sale of investment 13,777 -
Net change in receivables, inventories, and trade payables (129,061) 59,690
Net change in other assets and liabilities (104,163) (361,999)
Other, net 13,814 95,700
Net cash provided by operating activities 238,964 113,932
Cash flows from investing activities:
Acquisitions (net of cash of $1,760 in 2016) - (29,927)
Capital expenditures (79,336) (32,526)
Proceeds from sale of plant and equipment 12,448 4,498
Purchases of marketable securities and other investments (70,253) (189,654)
Maturities and sales of marketable securities and other investments 12,499 291,372
Other, net 6,365 1,450
Net cash (used in) provided by investing activities (118,277) 45,213
Cash flows from financing activities:
Net payments for common stock activity (76,915) (131,738)
Net proceeds from debt 29,606 231,948
Div ends (88,104) (84,749)
Net cash (used in) provided by financing activities (135,413) 15,461
Effect of exchange rate changes on cash 4,606 (2,409)
Net (decrease) increase in cash and cash equivalents (10,120) 172,197
Cash and cash equivalents at beginning of period 884,886 1,221,653
Cash and cash equivalents at end of period 874,766$ 1,393,850$
Reconciliation of Forecasted EPS
25
(Unaudited)
(Amounts in dollars)
Fiscal Year
2018
Forecasted earnings per diluted share $8.45 to $9.05
Adjustments:
Business realignment charges .31
Clarcor costs to achieve .27
Loss on sale of investment .07
Adjusted forecasted earnings per diluted share $9.10 to $9.70
Supplemental Sales Information
Global Technology Platforms
26
(Unaudit d)
(Dollars in thousands)
September
30, 2017
December
31, 2017
March 31,
2018
June 30,
2018
September
30, 2017
December
31, 2017
March 31,
2018
June 30,
2018
Net sales
Diversif ied Industrial:
Motion Systems 809,747$ -$ -$ 809,747$
Flow and Process Control 995,347 - - 995,347
Filtration and Engineered Materials 1,028,371 - - 1,028,371
Aerospace Systems 531,186 - - 531,186
Total 3,364,651$ -$ -$ -$ 3,364,651$ -$ -$ -$
Three Months Ending Fiscal Year-to-Date