Parker Reports Fiscal 2010 Second Quarter Sales, Net Income and Earnings per Share

CLEVELAND, Jan. 19 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2010 second quarter ending December 31, 2009.  Fiscal 2010 second quarter sales were $2.4 billion, an increase of 5.3 percent compared with the first quarter of fiscal 2010 and a decline of 12.4 percent from $2.7 billion in the second quarter a year ago.  Fiscal 2010 second quarter net income was $104.6 million, an increase of 42.3 percent compared with the first quarter of fiscal 2010 and a decline of 32.7 percent compared with $155.4 million in the second quarter of fiscal 2009.  Fiscal 2010 second quarter earnings per diluted share of $0.64, increased 41.6 percent from the first quarter of fiscal 2010 and declined 33.1 percent compared with $0.96 in the second quarter a year ago.   Cash flow from operations for the first six months of fiscal 2010 was $606.3 million, or 13.2 percent of sales, compared with $444.5 million, or 7.7 percent of sales in the same prior year period.  

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"This quarter's results largely reflect the execution of our Win Strategy including the benefits of actions we have taken to restructure our operations since the recession began," said Chairman, CEO and President Don Washkewicz.  "Notably, our performance has improved significantly relative to the first quarter of the year. Considering that our second quarter is typically our weakest, our margin performance this quarter was most impressive with decremental margins at just 10.6 percent. Total segment operating margins exceeded 10 percent at this low point in the cycle and were equal to last year.  These are strong indicators that we are managing through this unprecedented downturn very effectively.  

"Although the effects of the global recession continue to linger, we are encouraged to see Parker's order trends improve sequentially for the second consecutive quarter.  Organic sales declined approximately 16 percent in the quarter, while foreign currency translation positively impacted sales by approximately 4 percent.  Operating cash flow year to date of 13.2 percent, another critical measure of our performance, was well above our targeted level of 10 percent.  Our strong cash performance and balance sheet management throughout the recession has enabled us to pay down our outstanding debt by approximately $1 billion in the past twelve months, bringing our current debt-to-debt equity ratio below 30 percent and further strengthening our balance sheet."

Segment Results

In the Industrial North America segment, second quarter sales declined 14.7 percent to $847.2 million, and operating income increased 6.3 percent to $114.4 million, compared with the same period a year ago.  

In the Industrial International segment, second quarter sales declined 10.6 percent to $932.1 million, and operating income declined 28.2 percent to $82.6 million, compared with the same period a year ago.  

In the Aerospace segment, second quarter sales declined 15.4 percent to $400.6 million, and operating income declined 41.1 percent to $41.0 million, compared with the same period a year ago.

In the Climate & Industrial Controls segment, second quarter sales declined 2.4 percent to $174.9 million, and operating income increased 147.9 percent to $6.1 million, compared with the same period a year ago.    

Orders

In addition to financial results, Parker also reported a decline of 7 percent in total orders for the quarter ending December 31, 2009, compared with the same quarter a year ago.  Parker reported the following orders by operating segment:  

    --  Orders declined 3 percent in the Industrial North America segment,
        compared with the same quarter a year ago.
    --  Orders were unchanged in the Industrial International segment, compared
        with the same quarter a year ago.
    --  Orders declined 27 percent in the Aerospace segment on a rolling 12
        month average basis.
    --  Orders increased 6 percent in the Climate and Industrial Controls
        segment, compared with the same quarter a year ago.

Outlook

For fiscal 2010, the company has increased its guidance for earnings from continuing operations by 44 percent to the range of $2.40 to $2.80 per diluted share.

Washkewicz added, "With our actions to drive strong margin and cash flow performance taking full effect, and what we believe to be the early signs of a recovery emerging, we are anticipating a strong second half to our fiscal year and have raised our guidance appropriately.  Our priorities will remain unchanged as we progress through this fiscal year focused on executing the Win Strategy and managing for cash while simultaneously targeting strong margin performance.  Parker's management remains proud of our worldwide team of employees who has made these results possible.  As the recovery unfolds, Parker's leading market position, global scale and balance, end market breadth, and solid financial and operational fundamentals position us well for profitable growth."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2010 second quarter results are available to all interested parties via live webcast today at 10:00 a.m. ET, on the company's investor information web site, http://www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker.  A replay of the conference call will also be available at http://www.phstock.com for one year after the call.

With annual sales exceeding $10 billion in fiscal year 2009, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets. The company employs approximately 52,000 people in 48 countries around the world. Parker has increased its annual dividends paid to shareholders for 53 consecutive years, among the top five longest-running dividend-increase records in the S&P 500 index. For more information, visit the company's web site at http://www.parker.com, or its investor information web site at http://www.phstock.com.

Notes 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 percent change in orders for the Industrial North America, Industrial International, and Climate and Industrial Controls segments, and the year-over-year 12-month rolling average of orders for the Aerospace segment.

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. 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 and 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 recession, and growth, innovation and global diversification initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment results. Among the 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; uncertainties surrounding timing, successful completion or integration of acquisitions; threats associated with and efforts to combat terrorism; 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; increases in raw material costs that cannot be recovered in product pricing; the company's ability to manage costs related to employee retirement and health care benefits and insurance; 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.

PARKER HANNIFIN CORPORATION - DECEMBER 31, 2009

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

                             Three Months Ended        Six Months Ended

                             December 31,              December 31,

(Dollars in thousands except
per share amounts)           2009         2008         2009         2008



Net sales                    $ 2,354,708  $ 2,688,656  $ 4,591,873  $ 5,753,344

Cost of sales                1,869,481    2,121,450    3,670,426    4,458,672

Gross
profit                       485,227      567,206      921,447      1,294,672

Selling, general and
administrative expenses      309,840      337,183      611,683      669,866

Interest expense             25,029       30,307       50,752       58,403

Other expense, net           8,123        483          2,748        8,782

Income before income
taxes                        142,235      199,233      256,264      557,621

Income taxes                 37,272       42,472       77,331       149,025

Net income                   104,963      156,761      178,933      408,596

Less: Noncontrolling
interests                    417          1,360        894          3,019

Net income attributable to
common shareholders          $ 104,546    $ 155,401    $ 178,039    $ 405,577



Earnings per share
attributable to common
shareholders:

Basic earnings per
share                        $ .65        $ .97        $ 1.11       $ 2.49

Diluted earnings per
share                        $ .64        $ .96        $ 1.10       $ 2.47



Average shares outstanding
during period - Basic        160,767,790  160,839,120  160,698,541  162,627,269

Average shares outstanding
during period - Diluted      162,744,788  161,755,586  162,378,082  164,272,066



Cash dividends per
common share                 $ .25        $ .25        $ .50        $ .50

BUSINESS SEGMENT
INFORMATION BY INDUSTRY

                          Three Months Ended        Six Months Ended December
(Unaudited)               December 31,              31,

(Dollars in thousands)    2009         2008         2009         2008

Net sales

Industrial:

North America             $ 847,208    $ 993,040    $ 1,630,293  $ 2,100,117

International             932,057      1,042,741    1,782,307    2,265,933

Aerospace                 400,551      473,667      817,407      952,140

Climate & Industrial
Controls                  174,892      179,208      361,866      435,154

Total                     $ 2,354,708  $ 2,688,656  $ 4,591,873  $ 5,753,344

Segment operating income



Industrial:

North America             $ 114,435    $ 107,615    $ 190,606    $ 268,101

International             82,636       115,122      144,459      318,074

Aerospace                 41,026       69,658       94,172       137,806

Climate & Industrial
Controls                  6,144        (12,814)     16,641       2,685

Total segment operating
income                    244,241      279,581      445,878      726,666

Corporate general and
administrative expenses   31,472       42,372       57,774       82,746

Income from operations
before interest expense
and other                 212,769      237,209      388,104      643,920

Interest expense          25,029       30,307       50,752       58,403

Other expense             45,505       7,669        81,088       27,896

Income before income
taxes                     $ 142,235    $ 199,233    $ 256,264    $ 557,621

CONSOLIDATED BALANCE SHEET

(Unaudited)

(Dollars in thousands)              December 31, 2009         2008

Assets

Current assets:

Cash and cash equivalents                        $ 233,899    $ 261,990

Accounts receivable, net                         1,368,449    1,682,338

Inventories                                      1,232,979    1,519,651

Prepaid expenses                                 98,989       69,498

Deferred income taxes                            124,182      145,131

Total current assets                             3,058,498    3,678,608

Plant and equipment, net                         1,842,750    1,888,023

Goodwill                                         2,948,304    2,884,187

Intangible assets, net                           1,254,982    1,236,724

Other assets                                     689,655      427,649

Total assets                                     $ 9,794,189  $10,115,191



Liabilities and shareholders' equity

Current liabilities:

Notes payable                                    $ 389,715    $ 1,022,112

Accounts payable                                 692,721      751,942

Accrued liabilities                              680,450      777,462

Accrued domestic and foreign taxes               153,152      116,183

Total current liabilities                        1,916,038    2,667,699

Long-term debt                                   1,554,088    1,882,693

Pensions and other postretirement benefits       1,258,258    480,561

Deferred income taxes                            186,493      216,131

Other liabilities                                241,526      213,970

Shareholders' equity                             4,552,027    4,564,109

Noncontrolling interests                         85,759       90,028

Total liabilities and equity                     $ 9,794,189  $10,115,191

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)                                       Six Months Ended December 31,

(Dollars in thousands)                            2009       2008



Cash flows from operating activities:

Net income                                        $ 178,933  $ 408,596

Depreciation and amortization                     189,937    175,885

Share incentive plan compensation                 37,060     28,451

Net change in receivables, inventories, and trade
payables                                          155,231    72,151

Net change in other assets and liabilities        79,808     (250,577)

Other, net                                        (34,719)   10,009

Net cash provided by operating activities         606,250    444,515

Cash flows from investing activities:

Acquisitions (net of cash of $24,191 in 2008)     -          (705,128)

Capital expenditures                              (61,232)   (174,391)

Proceeds from sale of plant and equipment         5,665      10,550

Other, net                                        (14,310)   (2,973)

Net cash (used in) investing activities           (69,877)   (871,942)

Cash flows from financing activities:

Net (payments for) common share activity          (3,973)    (430,080)

Net (payments for) proceeds from debt             (399,933)  911,428

Dividends                                         (80,363)   (81,331)

Net cash (used in) provided by financing
activities                                        (484,269)  400,017

Effect of exchange rate changes on cash           (5,816)    (36,648)

Net increase (decrease) in cash and cash
equivalents                                       46,288     (64,058)

Cash and cash equivalents at beginning of period  187,611    326,048

Cash and cash equivalents at end of period        $ 233,899  $ 261,990

SOURCE Parker Hannifin Corporation