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Parker Earnings Accelerate With Record Sales and Cash From Operations

July 29, 2004

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- Fourth-Quarter Income up 156 Percent on 20-Percent Revenue Increase - Sales Top $7 Billion as Upbeat Outlook Signals Record Earnings in FY 2005

CLEVELAND, Jul 29, 2004 /PRNewswire-FirstCall via COMTEX/ -- Parker Hannifin Corporation (NYSE: PH) today marked new records in sales and cash flow for fiscal-year 2004, as sales topped $7 billion for the first time in the company's 86-year history, and cash from operations reached a record $662.4 million, surpassing last year's result of $557.5 million. This year's record cash from operations was achieved even with the company's discretionary contribution to its retirement and benefits plans of approximately $146 million, compared with $108 million contributed last year.

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

For the full year, Parker posted a 76-percent increase in net income, at $345.8 million, or $2.91 per diluted share. Revenues reached a record $7.11 billion, up 11 percent, including a 5.6-percent increase in organic volume, while acquisitions and currency translation contributed 1.6 percent and 3.6 percent respectively. Last year, the company earned $196.3 million, or $1.68 per diluted share, on sales of $6.41 billion. The current year's results include a five-cent divestiture gain and a reduction of nine cents per diluted share in realignment costs, compared with a four-cent divestiture gain and a reduction of 16 cents per diluted share in realignment costs last year.

Fourth-quarter net income for the period ended June 30, 2004 was up 156 percent, at $125.5 million, or $1.05 per diluted share, on sales of $1.99 billion, compared with last year's quarterly income of $49.1 million, or 42 cents per diluted share, on sales of $1.66 billion. Included in the current quarter's earnings is a five-cent divestiture gain and a two-cent reduction from realignment costs, while last year's earnings reflected a four-cent divestiture gain and a reduction of six cents per share in realignment costs. Revenue growth in the current quarter includes a 15-percent increase in organic volume, a two-percent increase from currency translation and three- percent growth from acquisitions not reflected in the prior-year comparison.

"With the broad based recovery of all our industrial markets, and aerospace at the beginning of a rebound, our growth engine is firing on all cylinders," said Parker CEO Don Washkewicz. "The recovery didn't really start to pick up until January, so we've only had the wind at our backs for half a year. Yet our margins are up dramatically, inventories remain lean and cash flow has never been stronger. We are executing our Win Strategy, and as long as this recovery is sustained, we see a lot more growth potential in our business.

"Our message to Parker employees is to keep up the great work. Our goal is to maintain the gains we worked so hard to achieve, and extend them -- by executing our strategic initiatives, staying lean and focused -- and shifting growth into high gear. Today, we're winning more competitive bids on our systems and portfolio strength, global expansion, and innovation exceeding our customers' expectations."

Operating Results

Sales and operating income were up in all of the company's segments, with an overall 109-percent increase in operating income for the fourth quarter, and up 45 percent for the full year.

The North American Industrial units led the improvement, with operating income up 230 percent in the fourth quarter, and 98 percent for the year. Quarterly operating income was $114.3 million on sales of $867.4 million, for a return on sales of 13.2 percent, compared with a 4.8-percent margin last year. For the year, North American Industrial operating income was $306.9 million on revenues of $3.09 billion, for an operating margin of 9.9 percent, up from 5.5 percent last year.

The International Industrial businesses posted fourth-quarter operating income of $55.9 million, up 138 percent, on sales of $565.1 million, yielding a 9.9-percent return on sales for the quarter, compared with 5.5 percent last year. The most significant margin improvements were made in Europe, despite additional realignment costs this year. In all of 2004, the international businesses recorded operating income of $159.6 million, on sales of $1.97 billion, for an 8.1-percent operating margin, compared with 6.1 percent the prior year.

Parker Aerospace sales grew 11 percent during the quarter, to $307.6 million, with $40 million in operating income, improving its operating margin to 13.0 percent, compared with 12.3 percent a year ago. Full-year sales were up 2.8 percent to $1.14 billion, while operating income was $141.8 million, for a 12.4 percent return on sales in 2004, versus 14.2 percent last year.

In the Climate & Industrial Controls business, fourth-quarter operating income was $22.4 million, on sales of $189.3 million, an 11.8 percent return on sales, compared with 10.5 percent a year ago. The business generated full- year operating income of $71.8 million on sales of $671.2 million, a 10.7-percent return on sales, compared with 9.5 percent last year.

In the Other segment, comprised of the Wynn Specialty Chemical and Astron units, quarterly operating income was $9.5 million on $63.5 million in sales, for an operating margin of 15.0 percent, compared with 8.0 percent last year. Annual operating income was $22.1 million on $233 million in sales, an operating margin of 9.5 percent, compared with 5.5 percent a year ago.


Parker cited a positive outlook for fiscal-year 2005, noting an expectation for continued expansion in its diverse markets, with some possible tempering in heavy-duty trucks and semiconductors.

"As our markets continue to recover, we feel we have positioned Parker to gain a greater share of business in core and emerging markets where we have an unrivaled breadth of products and bring added engineering value, especially in aerospace, mobile, refrigeration, life sciences and clean-energy markets such as wind power and fuel cells," said Washkewicz.

The company projected earnings for fiscal-year 2005 to mark a new record, ranging from $3.30 to $3.70 per diluted share. In the first quarter, earnings are expected to range between 70 and 80 cents per diluted share, reflecting the company's typical pattern of earnings momentum, with more of the year's earnings occurring in the second half.

In addition to the information provided herein, 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 http://www.phstock.com .

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal fourth-quarter results is available to all interested parties via live webcast at 10 a.m. ET, on the company's investor information web site, at http://www.phstock.com . To access the call, click on the "Live Webcast" link, where users may also register for e-mail notification of future events and information available from Parker.

With annual sales of more than $7 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 http://www.parker.com , or its investor information site at http://www.phstock.com .

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 both its industrial and aerospace markets, and the company's ability to achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, and growth initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment projections. 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 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; and global economic factors, including currency exchange rates, difficulties entering new markets and general economic conditions such as interest rates. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them.


                           Three Months Ended June 30,   Year Ended June 30,
    (Dollars in thousands
     except per share
     amounts)                  2004         2003         2004         2003

    Net sales               $1,992,927   $1,660,661   $7,106,907   $6,410,610
    Cost of sales            1,567,483    1,382,628    5,742,053    5,309,775
    Gross profit               425,444      278,033    1,364,854    1,100,835
    Selling, general and
     expenses                  229,479      185,290      801,237      721,065
    Other income
       Interest expense        (17,012)     (22,162)     (73,396)     (81,561)
       Interest and other
        (expense), net           6,656        3,108        3,847         (827)
                               (10,356)     (19,054)     (69,549)     (82,388)
    Income before income
     taxes                     185,609       73,689      494,068      297,382
    Income taxes                60,136       24,607      148,285      101,110
    Net income                $125,473      $49,082     $345,783     $196,272

    Earnings per share:
       Basic earnings per
        share                    $1.06         $.42        $2.94        $1.69
       Diluted earnings
        per share                $1.05         $.42        $2.91        $1.68

    Average shares
     outstanding during
     period - Basic        118,194,932  116,509,222  117,707,772  116,381,880
    Average shares
     outstanding during
     period - Diluted      119,614,996  116,961,265  119,006,468  116,894,506

    Cash dividends per
     common share                 $.19         $.19         $.76         $.74


                             Three Months Ended June 30,  Year Ended June 30,
    (Dollars in thousands)         2004        2003        2004        2003
    Net sales
           North America         $867,399    $716,086  $3,091,947  $2,840,628
           International          565,065     428,429   1,970,398   1,584,443
        Aerospace                 307,598     276,825   1,140,122   1,109,566
        Climate & Industrial
         Controls                 189,337     181,356     671,157     665,629
        Other                      63,528      57,965     233,283     210,344
    Total                      $1,992,927  $1,660,661  $7,106,907  $6,410,610

    Segment operating income
           North America         $114,273     $34,624    $306,903    $155,258
           International           55,859      23,482     159,629      96,301
        Aerospace                  39,983      33,971     141,838     157,295
        Climate & Industrial
         Controls                  22,364      19,055      71,769      63,441
        Other                       9,537       4,642      22,141      11,584
    Total segment operating
     income                      $242,016    $115,774    $702,280    $483,879
    Corporate general and
     administrative expenses       32,886      17,992     106,501      80,147
    Income from operations
     before interest
     expense and other            209,130      97,782     595,779     403,732
    Interest expense               17,012      22,162      73,396      81,561
    Other expense                   6,509       1,931      28,315      24,789
    Income before income taxes   $185,609     $73,689    $494,068    $297,382

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


    (Dollars in thousands)        June 30,          2004              2003
    Current assets:
    Cash and cash equivalents                     $183,847          $245,850
    Accounts receivable, net                     1,201,343         1,002,060
    Inventories                                    991,378           997,167
    Prepaid expenses                                45,814            51,949
    Deferred income taxes                          114,551            99,781
    Total current assets                         2,536,933         2,396,807
    Plant and equipment, net                     1,591,853         1,657,425
    Goodwill                                     1,198,411         1,108,610
    Intangible assets, net                         102,097            59,444
    Other assets                                   827,610           763,347
    Total assets                                $6,256,904        $5,985,633

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                  $35,198          $424,235
    Accounts payable                               534,561           437,103
    Accrued liabilities                            565,436           497,295
    Accrued domestic and foreign taxes             124,546            65,094
    Total current liabilities                    1,259,741         1,423,727
    Long-term debt                                 953,804           966,332
    Pensions and other postretirement benefits     813,635           920,420
    Deferred income taxes                           79,028            20,780
    Other liabilities                              168,242           133,463
    Shareholders' equity                         2,982,454         2,520,911
    Total liabilities and shareholders' equity  $6,256,904        $5,985,633

                                                      Year Ended June 30,
    (Dollars in thousands)                          2004              2003

    Cash flows from operating activities:
    Net income                                    $345,783          $196,272
    Depreciation and amortization                  252,785           259,178
    Net change in receivables,
     inventories, and trade payables                15,201           140,625
    Net change in other assets and liabilities      55,457           (66,397)
    Other, net                                      (6,828)           27,811
    Net cash provided by operating activities      662,398           557,489
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $63,691 in 2004 and $196 in 2003)            (200,314)          (16,648)
    Capital expenditures                          (141,546)         (158,260)
    Other, net                                      71,388            37,723
    Net cash (used in) investing activities       (270,472)         (137,185)
    Cash flows from financing activities:
    Net proceeds from common share activity         56,223             9,386
    Net (payments of) debt                        (415,428)         (145,764)
    Dividends                                      (89,286)          (85,833)
    Net cash (used in) financing activities       (448,491)         (222,211)
    Effect of exchange rate changes on cash         (5,438)            1,373
    Net (decrease) increase in cash and
     cash equivalents                              (62,003)          199,466
    Cash and cash equivalents at beginning
     of period                                     245,850            46,384
    Cash and cash equivalents at end of
     period                                       $183,847          $245,850

SOURCE Parker Hannifin Corporation

Media, Lorrie Paul Crum, VP - Corp. Communications, +1-216-896-2750, or after hours, +1-330-666-4196, or lcrum@parker.com , or Financial Analysts, Pamela Huggins, VP & Treasurer, +1-216-896-2240, or phuggins@parker.com


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