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Benefiting from Realignment Efforts, Parker's Fiscal Q2 Net Income Rises 29 Percent

January 16, 2003

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CLEVELAND, Jan. 16 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation today reported a 29-percent increase in fiscal second-quarter net income of $37.6 million, or 32 cents per diluted share, on sales of $1.52 billion for the period ended December 31, 2002. Before five cents per share in previously announced realignment costs (severance and manufacturing relocations) and write-down of an investment in a Japanese joint venture, quarterly earnings were 37 cents per diluted share. Also, a change in the company's tax rate decreased earnings by an additional penny per share. Last year, second-quarter net income was $29.1 million, or 25 cents per diluted share (33 cents before realignment costs and an investment write-down), on sales of $1.44 billion.

(Photo: http://www.newscom.com/cgi-bin/prnh/19990816/PHLOGO)

"We're in the final stages of our planned realignment activities," said Parker CEO Don Washkewicz. "Our cash flow was strong again this quarter, and working capital and capital expenditures are down materially from two years ago. We remain focused on our 'Win Strategy' initiatives to further enhance our prospects for future growth and profitability."

Working off of backlog, Parker Aerospace recorded an operating margin of 15.5 percent for the quarter, with a 4.5-percent decline in sales. The company noted stability in commercial aviation, but expects its aerospace unit to contend with margin pressure for the foreseeable future.

Both the North American and International Industrial units increased sales and operating income during the second quarter. With help from recent acquisitions and currency, sales were up 29 percent in the company's International Industrial businesses, and the operating margin was 6.0 percent. The North American Industrial margin was 4.1 percent, on a four-percent increase in sales.

In the "Other" segment, sales decreased seven percent after last year's divestiture of a non-core business, while the operating margin improved to 6.3 percent. Included in this segment is Climate and Industrial Controls, which posted higher sales and profits.

Year-to-Date Results

For the first six months of fiscal 2003, the company recorded net income of $98.5 million, or 84 cents per diluted share (90 cents before realignment charges and an investment write-down) on sales of $3.10 billion. Income is up 10 percent over last year's $89.6 million, or 77 cents per diluted share (88 cents excluding realignment costs and an investment write-down), earned on sales of $2.91 billion.


"Historically, our post-recession rebound has been very strong. When the industrial recession ends, we're confident the company will be positioned to resume more robust growth and margin improvement," said Washkewicz.

Excluding realignment costs, the company's earnings in the third quarter of fiscal year 2003 are expected to be between 55 and 65 cents per share, while earnings for the full year are expected to range from $2.10 to $2.30 per share.

In addition to providing earnings estimates, 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 www.phstock.com .

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, 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.

With annual sales exceeding $6 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 48,000 people in 44 countries around the world. For more information, visit the company's web site at www.parker.com , or its investor information site at www.phstock.com .

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 company's future performance and earnings projections may differ materially from current expectations, depending on economic conditions within both its industrial and aerospace markets, and the company's ability to achieve anticipated benefits associated with announced realignment activities and strategic initiatives to improve operating margins. Among the 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; uncertainties surrounding timing, successful completion and 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; and global economic factors, including currency exchange rates, difficulties entering new markets and general economic conditions such as interest rates. In each quarterly earnings report, the company intends to provide a range stating expected earnings per share for the succeeding quarter and full fiscal year, reflecting these ranges as estimates of diluted earnings per share before realignment activities. The company makes these statements as of the date of this disclosure, and while it undertakes no obligation to update them, reserves the right to update its earnings projections for any reason during the quarter, including the occurrence of material events.


    (Dollars in thousands       Three Months Ended         Six Months Ended
     except per share              December 31,               December 31,
     amounts)                   2002         2001         2002         2001

    Net sales               $1,517,201   $1,437,330   $3,103,105   $2,913,197
    Cost of sales            1,258,827    1,203,893    2,558,717    2,401,518
    Gross profit               258,374      233,437      544,388      511,679
    Selling, general and
     administrative expenses   177,142      164,883      353,397      330,298
    Other income
       Interest expense        (19,356)     (21,555)     (39,050)     (42,009)
       Interest and other
        income, net             (3,830)         (11)      (2,204)         106
                               (23,186)     (21,566)     (41,254)     (41,903)
    Income before income
     taxes                      58,046       46,988      149,737      139,478
    Income taxes                20,494       17,926       51,210       49,835
    Net income                 $37,552      $29,062      $98,527      $89,643

    Earnings per share:
       Basic earnings
        per share                 $.33         $.25         $.85         $.78
       Diluted earnings
        per share                 $.32         $.25         $.84         $.77

    Average shares
     outstanding during
     period - Basic        116,279,317  115,010,099  116,255,974  115,088,506
    Average shares
     outstanding during
     period - Diluted      117,118,546  115,618,970  116,863,141  115,685,834

    Cash dividends per
     common share                 $.18         $.18         $.36         $.36


                                Three Months Ended        Six Months Ended
    (Unaudited)                    December 31,              December 31,
    (Dollars in thousands)      2002         2001         2002         2001
    Net sales
           North America      $669,905     $646,299   $1,397,482   $1,297,139
           International       373,921      290,446      739,580      586,737
        Aerospace              275,400      288,312      552,721      600,812
        Other                  197,975      212,273      413,322      428,509
    Total                   $1,517,201   $1,437,330   $3,103,105   $2,913,197

Segment operating income

           North America       $27,423      $23,576      $78,468      $64,041
           International        22,321       13,207       48,967       33,035
        Aerospace               42,651       46,446       85,184      103,338
       Other                    12,445        9,429       31,289       26,421
    Total segment
     operating income          104,840       92,658      243,908      226,835
    Corporate general and
     expenses                   19,395       15,674       39,493       32,613
    Income from operations
     before interest
      expense and other         85,445       76,984      204,415      194,222
    Interest expense            19,356       21,555       39,050       42,009
    Other expense (income)       8,043        8,441       15,628       12,735
    Income before income
     taxes                     $58,046      $46,988     $149,737     $139,478

Note: Certain prior period amounts have been reclassified to conform to
the current year presentation.
    (Dollars in
     thousands)        December 31,                 2002              2001
    Current assets:
    Cash and cash equivalents                      $35,365           $28,883
    Restricted investments                                            92,912
    Accounts receivable, net                       898,888           813,638
    Inventories                                  1,058,579         1,110,732
    Prepaid expenses                                41,298            43,055
    Deferred income taxes                           87,483           101,303
    Total current assets                         2,121,613         2,190,523
    Plant and equipment, net                     1,674,837         1,701,925
    Goodwill                                     1,079,808         1,074,500
    Intangible assets, net                          54,495            25,678
    Other assets                                   660,467           556,192
    Total assets                                $5,591,220        $5,548,818

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $580,816          $493,278
    Accounts payable                               371,835           336,454
    Accrued liabilities                            409,126           449,027
    Accrued domestic and foreign taxes              54,899            60,605
    Total current liabilities                    1,416,676         1,339,364
    Long-term debt                                 773,733         1,063,061
    Pensions and other postretirement
     benefits                                      510,206           216,093
    Deferred income taxes                           90,629           145,700
    Other liabilities                              128,850           199,556
    Shareholders' equity                         2,671,126         2,585,044
    Total liabilities and shareholders'
     equity                                     $5,591,220        $5,548,818

    (Unaudited)                                Six Months Ended December 31,
    (Dollars in thousands)                            2002              2001

    Cash flows from operating activities:
    Net income                                     $98,527           $89,643
    Depreciation and amortization                  129,827           122,516
    Net change in receivables,
     inventories, and trade payables                52,551           135,699
    Net change in other assets and
     liabilities                                   (31,920)           (2,582)
    Other, net                                      11,464             5,060
    Net cash provided by operating
     activities                                    260,449           350,336
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $8 in 2002 and $343 in 2001)                   (1,999)         (310,178)
    Capital expenditures                           (79,053)         (113,119)
    Other, net                                      10,402           (14,176)
    Net cash used in investing activities          (70,650)         (437,473)
    Cash flows from financing activities:
    Net proceeds from (payments for)
     common share activity                           2,222            (4,710)
    Net (payments of) proceeds from debt          (162,644)          141,216
    Dividends                                      (41,696)          (41,430)
    Net cash (used in) provided by
     financing activities                         (202,118)           95,076
    Effect of exchange rate changes on
     cash                                            1,300            (2,621)
    Net (decrease) increase  in cash and
     cash equivalents                              (11,019)            5,318
    Cash and cash equivalents at
     beginning of period                            46,384            23,565
    Cash and cash equivalents at end of
     period                                        $35,365           $28,883

SOURCE Parker Hannifin Corporation

CONTACT: Media, Lorrie Paul Crum, VP - Corp. Communications, +1-216-896-2750, or lcrum@parker.com, Financial Analysts, Timothy K. Pistell, Treasurer, +1-216-896-2130, or tpistell@parker.com, both of Parker Hannifin Corporation

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