Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - PARKER HANNIFIN CORP | exhibit9913qfy18.htm |
| 8-K - 8-K - PARKER HANNIFIN CORP | coverform8-k3qfy18.htm |
3rd Quarter Fiscal Year 2018
Earnings Release
Parker Hannifin Corporation
April 26, 2018
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 the 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 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 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. Additionally, the actual impact of the U.S. Tax Cuts and Jobs Act may affect future performance and earnings projections as the amounts
reflected in this period are preliminary estimates and exact amounts will not be determined until a later date, and there may be other judicial or regulatory interpretations of the U.S. Tax Cuts and
Jobs Act that may also affect these estimates and the actual impact on the company. 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 CLARCOR costs to achieve
and acquisition-related expenses, (d) Below the Line Items reported in accordance with U.S. GAAP to Below the Line Items without the effect of the gain on sale and write-down of assets, net, and
(e) Income tax in accordance with U.S. GAAP to Income tax without the effect of U.S. Tax Reform one-time impact, net (f) 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, gain on sale and write-down of assets, net
and U.S. Tax Reform one-time impact, net. 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 acquisition-related expenses. 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, acquisition-related expenses, gain on sale and write-
down of assets, net and U.S. Tax Reform one-time impact, net 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, Income Tax 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, a gain on sale and write-down of assets, net and U.S. Tax Reform one-time impact, net.
Please visit www.PHstock.com for more information
2
Agenda
3
• Highlights of Quarter Results
• Results & Outlook
• Questions & Answers
Highlights of Quarter Results
4
Third Quarter Results
Safety - 25% reduction in recordable injuries
All-time records for sales, net income, net income ROS and reported EPS
Sales increased 20% (8% organic), order rates increased 11%
Segment operating margin 15.8% as reported (Q3 record), 16.3% adjusted
EBITDA margins up 280 bps to 17.1%, 17.6% adjusted
Adjusted EPS increase 33% to $2.80
Cash and Capital Deployment
15% quarterly dividend increase
Gross Debt/EBITDA 2.6X (trailing 12 month basis)
Going Forward
Clarcor integration going well, increased synergies
Increased EPS outlook
Positive momentum, increased 5 year targets
Diluted Earnings Per Share
3rd Quarter FY2018
5
¹Adjusted for Business Realignment Charges, Clarcor Costs to Achieve
²Adjusted for Business Realignment Charges, Acquisition-related expenses
,
Influences on Adjusted Earnings Per Share
3rd Quarter FY2018 vs. 3rd Quarter FY2017
6
¹Adjusted for Business Realignment Charges, Acquisition-related expenses
²Adjusted for Business Realignment Charges, Clarcor Costs to Achieve
$ in millions 3rd Quarter
FY2018
%
Change FY2017
Sales
As Reported 3,750$ 20.2 % 3,119$
Acquisitions 233 7.5 %
Currency 136 4.3 %
Organic Sales 3,381$ 8.4 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 593$ 15.8 % 460$ 14.8 %
Business Realignment 7 17
CLARCOR Costs to Achieve 10
Acquisition-Related Expenses 26
Adjusted 610$ 16.3 % 503$ 16.1 %
Sales & Segment Operating Margin
Total Parker
7
Sales & Segment Operating Margin
Diversified Industrial North America
8
$ in millions 3rd Quarter
FY2018
%
Change FY2017
Sales
As Reported 1,762$ 24.7 % 1,413$
Acquisitions 195 13.8 %
Currency 7 0.5 %
Organic Sales 1,560$ 10.4 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 281$ 15.9 % 227$ 16.1 %
Business Realignment 0 4
CLARCOR Costs to Achieve 8
Acquisition-Related Expenses 27
Adjusted 289$ 16.4 % 258$ 18.2 %
Sales & Segment Operating Margin
Diversified Industrial International
9
$ in millions 3rd Quarter
FY2018
%
Change FY2017
Sales
As Reported 1,389$ 23.1 % 1,129$
Acquisitions 38 3.3 %
Currency 127 11.2 %
Organic Sales 1,224$ 8.6 %
FY2018
% of
Sales FY2017
% of
Sales
S gment Operating Margin
As Reported 205$ 14.8 % 153$ 13.6 %
Business Realignment 5 11
CLARCOR Costs to Achieve 2
Adjusted 212$ 15.3 % 164$ 14.5 %
Sales & Segment Operating Margin
Aerospace Systems
10
$ in millions 3rd Quarter
FY2018
%
Change FY2017
Sales
As Reported 598$ 3.7 % 577$
Acquisitions - - %
Currency 2 0.4 %
Organic Sales 596$ 3.4 %
FY2018
% of
Sales FY2017
% of
Sales
Segment Operating Margin
As Reported 106$ 17.8 % 80$ 13.9 %
Business Realignment 2 2
Adjusted 108$ 18.1 % 82$ 14.2 %
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
Mar 2018 Dec 2017 Mar 2017 Dec 2016
Total Parker 11 %+ 13 %+ 8 %+ 5 %+
Diversified Industrial North America 11 %+ 15 %+ 9 %+ 0 %
Diversified Industrial International 8 %+ 13 %+ 13 %+ 10 %+
Aerospace Systems 17 %+ 8 %+ 0 % 9 %+
Cash Flow from Operating Activities
FY2018 Q3 YTD
12
¹Adjusted for Discretionary Pension Plan Contribution
3rd Quarter Full Year
FY 2018 % of Sales FY 2017 % of Sales
As Reported Cash Flow From Operating Activities 905$ 8.6% 789$ 9.2%
Discretionary Pension Plan Contribution 220$
Adjusted Cash Flow From Operating Activities 905$ 8.6% 1,009$ 11.8%
FY2018 Guidance
EPS Midpoint: $7.86 As Reported, $10.05 Adjusted
13
¹Expected FY18 Adjusted Segment Operating Margins exclude FY18 Business Realignment Charges, Clarcor Costs to Achieve
²Expected FY18 Adjusted Below the Line Items exclude the Gain on Sale and Write-down of Assets, net
³Expected FY18 Tax Rate excludes U.S. Tax Reform one-time impact, net
⁴Expected FY18 Adjusted Earnings Per Share excludes FY18 Business Realignment Charges, Clarcor Costs to Achieve, the
Gain on Sale and Write-down of Assets and U.S. Tax Reform one-time impact, net
Sales Growth vs. Prior Year
Diversified Industrial North America
Diversified Industrial International
Aerospace Systems
Total Parker
Segment Operating Margins As Reported Adjusted¹
Diversified Industrial North America 15.9% - 16.1% 16.6% - 16.8%
Diversified Industrial International 14.2% - 14.4% 15.1% - 15.3%
Aerospace Systems 16.4% - 16.6% 16.5% - 16.7%
Total Parker 15.4% - 15.6% 16.0% - 16.2%
Below the Line Items As Reported Adjusted²
Corporate General & Administrative Expense, Interest and Other $516 $511
Tax Rate As Reported Adjusted³
Full Year 37% 24%
Shares
Diluted Shares Outstanding
Earnings Per Share As Reported Adjusted⁴
Range $7.76 - $7.96 $9.95 - $10.15
135.9 M
23.9% - 25.9%
19.3% - 21.3%
0.2% - 2.2%
17.7% - 19.7%
FY2018 Guidance
Reconciliation to Prior Guidance
14
¹Adjusted for Business Realignment Charges, Clarcor Costs to Achieve,
U.S. Tax Reform one-time impact, net and the Gain on Sale and Write-
down of Assets, net
Key Takeaways
15
Broad-based improvement in demand across geographies
Win Strategy initiatives generating improvements in growth and
margins
Increasing earnings guidance – on track for record year
Bright future ahead – new 5-year targets would put Parker in top
quartile of peer performance
16
Appendix
• Consolidated Statement of Income
• Adjusted Amounts Reconciliation
• Reconciliation of Earnings Per Share
• Business Segment Information
• Reconciliation of Total Segment Operating Margin to Adjusted Total
Segment Operating Margin
• Reconciliation of EBITDA and Adjusted EBITDA
• Consolidated Balance Sheet
• Consolidated Statement of Cash Flows
• Reconciliation of Cash Flow from Operations to Adjusted Cash
Flow from Operations
• Reconciliation of Forecasted EPS
• Supplemental Sales Information – Global Technology Platforms
Consolidated Statement of Income
18
(Unaudited) Three Months Ended March 31, Nine Months Ended March 31,
(Dollars in thousands except per share amounts) 2018 2017 2018 2017
Net sales 3,749,591$ 3,119,139$ 10,484,915$ 8,533,074$
Cost of sales 2,825,008 2,383,790 7,926,956 6,534,280
Selling, general and administrative expenses 420,595 392,036 1,234,729 1,051,583
Interest expense 54,145 42,057 160,833 109,649
Other (income), net (19,984) (13,807) (41,953) (90,468)
Income before income taxes 469,827 315,063 1,204,350 928,030
Income taxes 103,697 76,216 496,363 237,545
Net income 366,130 238,847 707,987 690,485
Less: Noncontrolling interests 141 174 442 378
Net income attributable to common shareholders 365,989$ 238,673$ 707,545$ 690,107$
Earnings per share attributable to common shareholders:
Basic earnings per share 2.75$ 1.79$ 5.32$ 5.17$
Diluted earnings per share 2.70$ 1.75$ 5.22$ 5.09$
Average shares outstanding during period - Basic 133,032,431 133,232,378 133,107,321 133,410,622
Average shares outstanding during period - Diluted 135,768,280 136,102,974 135,661,385 135,527,195
Cash dividends per common share .66$ .66$ 1.98$ 1.92$
Adjusted Amounts Reconciliation
19
THIRD QUARTER 2018 U.S. GAAP TO ADJUSTED AMOUNTS RECONCILIATION
INCOME STATEMENT
(Amounts in thousands, except per share amounts)
(Unaudited)
As Reported Business Costs to Adjusted
Mar-18 Realignment Achieve Mar-18
Net sales 3,749,591$ -$ -$ 3,749,591$
Cost of sales 2,825,008 4,121 5,390 2,815,497
Selling, general and administrative expenses 420,595 2,701 5,022 412,872
Interest expense 54,145 54,145
Other (income), net (19,984) 224 (20,208)
Income before income taxes 469,827 (6,822) (10,636) 487,285
Income taxes 103,697 1,774 2,765 108,236
Net income 366,130 (5,048) (7,871) 379,049
Less: Noncontrolling interests 141 141
Net income attributable to common shareholders 365,989$ (5,048)$ (7,871)$ 378,908$
EPS attributable to common shareholders:
Diluted earnings per share 2.70$ (0.04)$ (0.06)$ 2.80$
THIRD QUARTER FY 2018
THIRD QUARTER FY 2018 U.S. GAAP TO ADJUSTED AMOUNTS RECONCILIATION
SEGMENTS
(Amounts in thousands, except per share amounts)
(Unaudited)
As Reported Business Costs to Adjusted
Mar-18 Realignment Achieve Mar-18
S gment Operating Income
Industrial:
North America 280,694$ 358$ 8,060$ 289,112$
Internation l 205,251 4,649 2,576 212,476
Aerospace 106,653 1,815 108,468
Total segment operating income 592,598 (6,822) (10,636) 610,056
Corporate administration 54,138 54,138
Income before interest expense and other 538,460 (6,822) (10,636) 555,918
Interest expense 54,145 54,145
Other expense 14,488 14,488
Income before income taxes 469,827$ (6,822)$ (10,636)$ 487,285$
THIRD QUARTER FY 2018
Reconciliation of Earnings Per Share
20
(Unaudited) Three Months Ended March 31, Nine Months Ended March 31,
(Amounts in dollars) 2018 2017 2018 2017
Earnings per diluted share 2.70$ 1.75$ 5.22$ 5.09$
Adjustments:
Business realignment charges 0.04 0.09 0.16 0.19
Clarcor costs to achieve 0.06 - 0.16 -
Gain on sale and w ritedow n of assets, net - - 0.02 -
U.S. Tax Reform one-time impact, net - - 1.65 -
Acquisition-related expenses - 0.27 - 0.36
Adjusted earnings per diluted share 2.80$ 2.11$ 7.21$ 5.64$
Business Segment Information
21
(Unaudited) Three Months Ended March 31, Nine Months Ended March 31,
(Dollars in thousands) 2018 2017 2018 2017
Net sales
Diversif ied Industrial:
North America 1,761,845$ 1,413,302$ 4,921,952$ 3,701,326$
International 1,389,332 1,128,886 3,883,675 3,149,777
Aerospace Systems 598,414 576,951 1,679,288 1,681,971
Total 3,749,591$ 3,119,139$ 10,484,915$ 8,533,074$
Segment operating income
Diversif ied Industrial:
North America 280,694$ 227,419$ 762,528$ 612,043$
International 205,251 152,995 561,848 417,708
Aerospace Systems 106,653 79,967 271,235 225,764
Total segment operating income 592,598 460,381 1,595,611 1,255,515
Corporate general and administrative expenses 54,138 45,747 142,430 120,707
Income before interest and other expense 538,460 414,634 1,453,181 1,134,808
Interest expense 54,145 42,057 160,833 109,649
Other expense 14,488 57,514 87,998 97,129
Income before income taxes 469,827$ 315,063$ 1,204,350$ 928,030$
22
Reconciliation of Total Segment Operating
Margin to Adjusted Total Segment
Operating Margin
(Unaudited)
(Dollars in thousands)
Operating
income Operating margin Operating income Operating margin
Total segment operating income 592,598$ 15.8% 460,381$ 14.8%
Adjustments:
Business realignment charges 6,822 16,318
Clarcor costs to achieve 10,636 26,226
Adjusted total segment operating income 610,056$ 16.3% 502,925$ 16.1%
Three months ended Three months ended
March 31, 2018 March 31, 2017
23
Reconciliation of Total Segment Operating
Margin to Adjusted Total Segment
Operating Margin
(Unaudited)
(Dollars in thousands)
Operating
income Operating margin Operating income Operating margin
Total segment operating income 1,595,611$ 15.2% 1,255,515$ 14.7%
Adjustments:
Business realignment charges 28,476 34,960
Clarcor costs to achieve 28,384 26,226
Adjusted total segment operating income 1,652,471$ 15.8% 1,316,701$ 15.4%
March 31, 2018 March 31, 2017
Nine months ended Nine months ended
Reconciliation of EBITDA and Adjusted
EBITDA
24
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
2018 2017
Net sales 3,749,591$ 3,119,139$
Earnings before income taxes 469,827$ 315,063$
Depreciation and amortization 117,100 87,458
Interest expense 54,145 42,057
EBITDA 641,072 444,578
Adjustments:
Business realignment charges 6,822 16,318
Clarcor costs to achieve 10,636 -
Acquisition-related expenses - 50,880
Adjusted EBITDA 658,530$ 511,776$
EBITDA margin 17.1% 14.3%
Adjusted EBITDA margin 17.6% 16.4%
Consolidated Balance Sheet
25
(Unaudited) March 31, June 30, March 31,
(Dollars in thousands) 2018 2017 2017
Assets
Current assets:
Cash and cash equivalents 1,089,529$ 884,886$ 819,563$
Marketable securities and other investments 101,206 39,318 36,758
Trade accounts receivable, net 2,146,408 1,930,751 1,869,303
Non-trade and notes receivable 328,111 254,987 235,924
Inventories 1,732,759 1,549,494 1,538,644
Prepaid expenses 165,083 120,282 118,962
Total current assets 5,563,096 4,779,718 4,619,154
Plant and equipment, net 1,941,799 1,937,292 1,945,739
Deferred income taxes 36,935 36,057 65,152
Goodw ill 5,746,358 5,586,878 5,508,712
Intangible assets, net 2,134,659 2,307,484 2,338,364
Other assets 814,637 842,475 848,212
Total assets 16,237,484$ 15,489,904$ 15,325,333$
Liabilities and equity
Current liabilities:
Notes payable 1,055,527$ 1,008,465$ 776,159$
Accounts payable 1,376,457 1,300,496 1,209,351
Accrued liabilities 896,604 933,762 904,297
Accrued domestic and foreign taxes 179,929 153,137 158,634
Total current liabilities 3,508,517 3,395,860 3,048,441
Long-term debt 4,818,570 4,861,895 5,255,156
Pensions and other postretirement benefits 1,351,106 1,406,082 1,787,311
Deferred income taxes 113,799 221,790 159,666
Other liabilities 569,209 336,931 327,033
Shareholders' equity 5,870,353 5,261,649 4,742,139
Noncontrolling interests 5,930 5,697 5,587
Total liabilities and equity 16,237,484$ 15,489,904$ 15,325,333$
Consolidated Statement of Cash Flows
26
(Unaudited) Nine Months Ended March 31,
(Dollars in thousands) 2018 2017
Cash flows from operating activities:
Net income 707,987$ 690,485$
Depreciation and amortization 351,316 236,543
Stock incentive plan compensation 89,571 60,916
(Gain) on sale of business - (42,994)
(Gain) loss on disposal of assets (26,767) 513
(Gain) on sale of marketable securities (1) (1,032)
Loss on sale and impairment of investments 33,759 -
Net change in receivables, inventories, and trade payables (329,428) (35,469)
Net change in other assets and liabilities 150,876 (169,403)
Other, net (72,488) 49,734
Net cash provided by operating activities 904,825 789,293
Cash flows from investing activities:
Acquisitions (net of cash of $157,426 in 2017) - (4,067,755)
Capital expenditures (194,307) (145,236)
Proceeds from sale of plant and equipment 64,203 8,452
Proceeds from sale of business - 85,610
Purchases of marketable securities and other investments (78,488) (451,561)
Maturities and sales of marketable securities and other investments 20,260 1,264,721
Other, net 5,350 (2,590)
Net cash (used in) investing activities (182,982) (3,308,359)
Cash flows from financing activities:
Net payments for common stock activity (199,361) (262,248)
Net (payments for) proceeds from debt (71,835) 2,687,761
Divi ends (264,332) (257,161)
Net cash (used in) provided by financing activities (535,528) 2,168,352
Effect of exchange rate changes on cash 18,328 (51,376)
Net increase (decrease) in cash and cash equivalents 204,643 (402,090)
Cash and cash equivalents at beginning of period 884,886 1,221,653
Cash and cash equivalents at end of period 1,089,529$ 819,563$
Reconciliation of Cash Flow from
Operations to Adjusted Cash Flow from
Operations
27
(Unaudited)
(Amounts in thousands)
Nine Months Ended
arch 31, 2018
Nine Months Ended
arch 31, 2017
Percent of sales Percent of sales
As reported cash flow from operations 904,825$ 8.6% 789,293$ 9.2%
Discretionary pension contribution - 220,000
Adjusted cash flow from operations 904,825$ 8.6% 1,009,293$ 11.8%
Reconciliation of Forecasted EPS
28
(Unaudited)
(Amounts in dollars)
Fiscal Year
2018
Forecasted earnings per diluted share $7.76 to $7.96
Adjustments:
Business realignment charges 0.27
Clarcor costs to achieve 0.25
Gain on sale and w ritedow n of assets, net 0.02
U.S. Tax Reform one-time impact, net 1.65
Adjusted forecasted earnings per diluted share $9.95 to $10.15
Supplemental Sales Information
Global Technology Platforms
29
(Unaudited)
(Dollars in thousands)
September 30,
2017
December 31,
2017
March 31,
2018
September 30,
2017
December 31,
2017
March 31,
2018
Net sales
Diversif ied Industrial:
Motion Systems 809,747$ 825,695$ 928,012$ 809,747$ $ 1,635,442 $ 2,563,454
Flow and Process Control 995,347 997,837 1,154,468 995,347 1,993,184 3,147,652
Filtration and Engineered Materials 1,028,371 997,453 1,068,697 1,028,371 2,025,824 3,094,521
Aerospace Systems 531,186 549,688 598,414 531,186 1,080,874 1,679,288
Total 3,364,651$ 3,370,673$ 3,749,591$ 3,364,651$ 6,735,324$ 10,484,915$
Three Months Ending Fiscal Year-to-Date