Parker Hannifin Earnings Per Share Up 53 Percent on Strong Sales in Record Second Quarter

CLEVELAND, Jan. 17 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH), the world leader in motion and control technologies, today reported second quarter fiscal year 2007 results. The company set new second quarter records for sales and income from continuing operations, both of which increased by double digit percentages from a year ago.


Sales for the second quarter of fiscal-year 2007 were $2.5 billion, up 16.4 percent, as compared to sales of $2.2 billion from the same period last year. Income from continuing operations in the second quarter of fiscal 2007, including the realization of a 9 cent per diluted share benefit from the December renewal of the Federal Tax Credit for Increasing Research Activities, was $1.64 per diluted share, an increase of 53.3 percent over the $1.07 per diluted share posted in the same period a year ago.

"Led by exceptional performance in our Industrial International and Aerospace segments, we were able to deliver another record second quarter, and we remain solidly on track for another outstanding year in fiscal 2007," said Chairman, CEO and President Don Washkewicz. "The record results we are delivering, quarter after quarter, are being driven by our employees' ongoing execution of our Win Strategy."

Second Quarter Segment Results

In the North American Industrial segment, second quarter operating income increased 2.8 percent over the prior year to $133.9 million, on sales of $959.7 million.

In the International Industrial segment, second quarter operating income increased 78.9 percent over the prior year to $121.8 million, on sales of $922.0 million.

In the Aerospace segment, second quarter operating income increased 43.2 percent over the prior year to $67.8 million, on sales of $402.0 million.

In the Climate & Industrial Controls segment, second quarter operating income decreased 29.8 percent over the prior year to $7.0 million, on sales of $227.4 million.

Total operating margin across all segments in the second quarter was 13.2 percent versus 11.8 percent in the same period a year ago.

Fiscal Year to Date Results

For the first six months of fiscal-year 2007, sales were $5.1 billion, up 18.5 percent, as compared to sales of $4.3 billion from the same period last year. Income from continuing operations for the first six months of fiscal 2007 was $3.39 per diluted share, up 49.3 percent from the $2.27 per diluted share reported in the same period in the prior year.

Cash flow from operations for the first six months of fiscal year 2007 reached $307.6 million. "The level of cash generation allows us to be flexible in terms of strategic acquisitions, share repurchases, capital investments and dividends," said Washkewicz. "In the second quarter, cash was used to repurchase $197 million of stock, bringing the fiscal 2007 year-to- date repurchase amount to $393 million. These expenditures are in addition to the discretionary contributions of $111 million made to the employees' pension funds in the first quarter of fiscal year 2007."


"Our 16.4 percent sales growth in the quarter significantly exceeded our growth goal of 10 percent," said Washkewicz. "The growth was profitable and balanced, with 6.4 percent derived organically, 6.4 percent via acquisitions and 3.6 percent from the favorable impact of foreign currency."

"While we are very pleased with our overall results this quarter, special mention must be made of our International Industrial and Aerospace segments," continued Washkewicz. "In the International segment sales grew by 36 percent and operating income increased by nearly 80 percent. Our Aerospace business also delivered excellent results this quarter. Revenues grew by 16 percent and operating income by 43 percent. We expect continued strength in this segment of our business."

"This is especially good news as International Industrial and Aerospace now represent more than half of our total revenues," said Washkewicz. "Particularly diligent execution of the Win Strategy in Europe is enabling us to achieve margins comparable to our North American business."


As a result of the continued strong results, the company increased its guidance for fiscal year 2007 income from continuing operations from $6.05 to $6.45 per diluted share to $6.35 to $6.75 per diluted share.

In addition to this information, Parker advises shareholders to note order trends, for which the company makes a disclosure several business days after the conclusion of each month. This information is available on the company's investor information web site, at

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal second-quarter results is available to all interested parties via live webcast today at 10:00 a.m. ET, on the company's investor information web site, 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.

With annual sales exceeding $9 billion, 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 commercial, mobile, industrial and aerospace markets. The company employs more than 57,000 people in 43 countries around the world. Parker has increased its annual dividends paid to shareholders for 50 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, or its investor information site at

Forward-Looking Statements: Forward-looking statements contained in this document and other written reports and oral statements 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 Company's future performance and earnings projections of the Company may differ materially from current expectations, depending on economic conditions within both its industrial and aerospace markets, and the Company's ability to achieve and maintain anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins and growth and innovation initiatives. A change in 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 or suppliers, including delays or cancellations in shipments, or significant changes in financial condition, uncertainties surrounding timing, successful completion or integration of acquisitions, threats associated with and efforts to combat terrorism, 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 insurance and employee retirement and health care benefits, and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as interest rates. The Company undertakes no obligation to update or publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this Report.


    (Unaudited)                Three Months Ended         Six Months Ended
    (Dollars in thousands          December 31,              December 31,
     except per share amounts)  2006         2005         2006         2005

    Net sales               $2,511,152   $2,157,537   $5,062,725   $4,271,088
    Cost of sales            1,938,007    1,705,683    3,885,365    3,361,436
    Gross profit               573,145      451,854    1,177,360      909,652
    Selling, general and
     expenses                  292,855      245,845      584,865      482,859
    Interest expense            22,304       19,587       39,476       36,058
    Other (income)
     expense, net               (6,777)      10,898      (13,403)      11,171
    Income from continuing
     operations before
     income taxes              264,763      175,524      566,422      379,564
    Income taxes                71,796       46,500      162,871      106,692
    Income from continuing
     operations                192,967      129,024      403,551      272,872
    Discontinued operations                                            28,884
    Net income                $192,967     $129,024     $403,551     $301,756

    Earnings per share:
       Basic earnings per
        share from
        operations               $1.66        $1.09        $3.44        $2.30
        operations                                                        .24
       Basic earnings per
        share                    $1.66        $1.09        $3.44        $2.54
       Diluted earnings
        per share from
        operations               $1.64        $1.07        $3.39        $2.27
        operations                                                        .24
       Diluted earnings
        per share                $1.64        $1.07        $3.39        $2.51

    Average shares
     outstanding during
     period - Basic        115,938,153  118,821,006  117,305,843  118,851,843
    Average shares
     outstanding during
     period - Diluted      117,926,398  120,324,168  119,139,690  120,385,768

    Cash dividends per
     common share                 $.26         $.23         $.52         $.46

                                  Three Months Ended       Six Months Ended
    (Unaudited)                       December 31,            December 31,
    (Dollars in thousands)         2006        2005        2006        2005
    Net sales
           North America         $959,663    $929,734  $1,960,428  $1,858,965
           International          922,011     676,526   1,799,715   1,297,290
        Aerospace                 402,039     345,274     804,397     694,081
        Climate & Industrial
         Controls                 227,439     206,003     498,185     420,752
    Total                      $2,511,152  $2,157,537  $5,062,725  $4,271,088

    Segment operating income

           North America         $133,890    $130,230    $287,028    $267,360
           International          121,769      68,068     249,300     148,509
        Aerospace                  67,778      47,322     136,403     102,105
        Climate & Industrial
         Controls                   6,963       9,914      37,787      28,530
    Total segment operating
     income                      $330,400    $255,534    $710,518    $546,504
    Corporate general and
     administrative expenses       43,960      28,489      80,630      57,316
    Income from continuing
     operations before
     interest expense and other   286,440     227,045     629,888     489,188
    Interest expense               22,304      19,587      39,476      36,058
    Other (income) expense           (627)     31,934      23,990      73,566
    Income from continuing
     operations before income
     taxes                       $264,763    $175,524    $566,422    $379,564

    (Dollars in thousands)     December 31,           2006              2005
    Current assets:
    Cash and cash equivalents                     $157,098          $313,338
    Accounts receivable, net                     1,524,240         1,250,448
    Inventories                                  1,314,400         1,153,521
    Prepaid expenses                                49,281            51,953
    Deferred income taxes                          131,228           133,508
    Total current assets                         3,176,247         2,902,768
    Plant and equipment, net                     1,706,795         1,643,941
    Goodwill                                     2,170,715         2,012,596
    Intangible assets, net                         469,222           428,632
    Other assets                                   933,316           807,860
    Total assets                                $8,456,295        $7,795,797

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $439,180          $534,423
    Accounts payable                               700,973           584,347
    Accrued liabilities                            658,536           563,619
    Accrued domestic and foreign taxes             120,094            64,496
    Total current liabilities                    1,918,783         1,746,885
    Long-term debt                               1,066,330         1,082,584
    Pensions and other postretirement
     benefits                                      834,413         1,059,314
    Deferred income taxes                          108,669            96,894
    Other liabilities                              211,035           202,748
    Shareholders' equity                         4,317,065         3,607,372
    Total liabilities and shareholders'
     equity                                     $8,456,295        $7,795,797

    (Unaudited)                                 Six Months Ended December 31,
    (Dollars in thousands)                            2006              2005

    Cash flows from operating activities:
    Net income                                    $403,551          $301,756
    Net (income) from discontinued
     operations                                                      (28,884)
    Depreciation and amortization                  148,198           136,678
    Stock-based compensation                        24,218            22,802
    Net change in receivables,
     inventories, and trade payables               (77,596)            5,259
    Net change in other assets and liabilities    (134,060)            4,778
    Other, net                                     (56,664)          (12,936)
    Discontinued operations                                           (9,266)
    Net cash provided by operating activities      307,647           420,187
    Cash flows from investing activities:
    Acquisitions (net of cash of $1,050
     in 2006 and $17,013 in 2005)                 (160,429)         (818,036)
    Capital expenditures                          (115,441)         (105,859)
    Proceeds from sale of businesses                                  92,715
    Other, net                                      21,923             6,784
    Discontinued operations                                             (100)
    Net cash (used in) investing activities       (253,947)         (824,496)
    Cash flows from financing activities:
    Net (payments for) proceeds from
     common share activity                        (360,616)            1,813
    Net proceeds from debt                         354,182           434,796
    Dividends                                      (61,192)          (54,669)
    Net cash (used in) provided by
     financing activities                          (67,626)          381,940
    Effect of exchange rate changes on cash           (529)             (373)
    Net (decrease) in cash and cash
     equivalents                                   (14,455)          (22,742)
    Cash and cash equivalents at
     beginning of period                           171,553           336,080
    Cash and cash equivalents at end of
     period                                       $157,098          $313,338

    Note:  Certain prior period amounts have been reclassified to conform to
    the current year presentation.

SOURCE Parker Hannifin Corporation