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Parker Earnings Lower as Markets Remain Depressed, Outlook Signals Gradual Improvement

January 16, 2002

CLEVELAND, Jan 16, 2002 /PRNewswire via COMTEX/ -- Parker Hannifin Corporation (NYSE: PH) today reported a decline in sales and income in the fiscal second quarter ended December 31, 2001. Net income fell to $29.1 million, or 25 cents per diluted share, on sales of $1.44 billion. Net of eight cents per share in realignment costs (including severance and manufacturing relocations) and the write-down of an investment in a Japanese joint venture, earnings were 33 cents per diluted share. Net income was $78.3 million, or 68 cents per share for the same period last year (78 cents per share excluding goodwill amortization).

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

"We're staying focused on our lean initiatives," said Parker CEO Don Washkewicz. "In our acquired and base businesses, we made progressive moves during this downturn to improve operating efficiencies, especially consolidating and relocating product lines."

The company noted that revenue in its base business, excluding acquisitions completed within the last year, was 14 percent lower than last year, reflecting lower volume in every segment, including Aerospace. With a two-percent decline in sales, Parker Aerospace recorded a margin of 16.1 percent during the quarter (16.8 percent excluding realignment costs).

Quarterly sales and income fell across the board on the industrial side, with a 12-percent decline in North American sales and a seven-percent drop in the International units. In both cases, operating income was substantially lower, with the most significant declines noted in what traditionally are the company's most profitable industrial markets, including factory automation, semiconductor manufacturing and telecommunications. Costs associated with realignment and the investment write-down also affected industrial margins, especially in the International business, which recorded a 2.8-percent return on sales, or 5.0 percent without these costs. The North American industrial units reported an operating margin of 3.6 percent (4.0 percent excluding realignment costs).

In the company's "Other" segment, including Climate & Industrial Controls and the addition of Astron and Wynn Oil since last year, the return on sales was 4.4 percent, or 5.2 percent without realignment costs.

Year-to-Date Results

For the first six months of fiscal 2002, the company recorded net income of $89.6 million, or 77 cents per diluted share (88 cents excluding realignment costs) on sales of $2.91 billion. A year ago, net income was $203.4 million, or $1.77 per diluted share ($1.74 excluding a net gain on the sale of real estate and goodwill amortization), with sales of $2.95 billion.

Outlook

"We have yet to see a sustained trend of improvement in industrial demand, but we do expect to see a gradual, sequential upturn in the third and fourth fiscal quarters," said Washkewicz. "And in aerospace, we're expecting military demand to begin to offset pressure on the commercial side."

The company's estimate of earnings in the third quarter of fiscal year 2002 is expected to be between 48 and 60 cents per share, while earnings for the full year are expected to range from $2.00 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 .

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 45,000 people in 45 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 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 in industrial and aerospace markets, including any adverse effects related to the events of September 11, 2001, and the company's ability to achieve anticipated benefits associated with realignment and acquisition-integration activities. 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; competitive market conditions and resulting effects on sales and pricing; increases in raw-material costs that cannot be recovered in product pricing; threats associated with terrorism; and global economic factors, including currency exchange rates and general economic conditions such as interest rates. In each quarterly earnings report, the company states a range of expected earnings per share for the succeeding quarter and full fiscal year, as estimates of diluted earnings per share before unusual items. 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.

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call to discuss its fiscal second-quarter results is available to all interested parties via live webcast today at 10:30 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.

    PARKER HANNIFIN CORPORATION - DECEMBER 31, 2001
    CONSOLIDATED STATEMENT OF INCOME

                              Three Months Ended          Six Months Ended
    (Unaudited)                   December 31,              December  31,
    (Dollars in thousands
     except per share
     amounts)                   2001        2000         2001          2000

    Net sales               $1,437,330   $1,467,619   $2,913,197   $2,952,750
    Cost of sales            1,203,893    1,152,364    2,401,518    2,311,393
    Gross profit               233,437      315,255      511,679      641,357
    Selling, general and
     administrative
     expenses                  164,883      169,596      330,298      332,037
    Other income
     (deductions):
       Interest expense        (21,555)     (25,607)     (42,009)     (46,775)
       Interest and other
        income, net                (11)       1,364          106       52,741
                               (21,566)     (24,243)     (41,903)       5,966
    Income before income
     taxes                      46,988      121,416      139,478      315,286
    Income taxes                17,926       43,102       49,835      111,926
    Net income                 $29,062      $78,314      $89,643     $203,360

    Earnings per share:
       Basic earnings per
        share                     $.25         $.68         $.78        $1.78
       Diluted earnings
        per share                 $.25         $.68         $.77        $1.77

    Average shares
     outstanding during
     period - Basic        115,010,099  114,007,029  115,088,506  113,968,357
    Average shares
     outstanding during
     period - Diluted      115,618,970  114,831,139  115,685,834  114,696,560

    Cash dividends per
     common share                 $.18         $.17         $.36         $.34

    Note:  Selling, general and administrative expenses for the three and six
    months ended December 31, 2000 includes $13,854 ($11,907 after tax or $.10
    per share) and $28,563 ($24,548 after tax or $.21 per share) of goodwill
    amortization, respectively.



    PRO FORMA RESULTS EXCLUDING GOODWILL AMORTIZATION

                                           Three Months Ended Six Months Ended
    (Unaudited)                                December 31,      December 31,
    (Dollars in thousands except per
     share amounts)                          2001     2000     2001      2000

    Reported net income                   $29,062  $78,314  $89,643  $203,360
    Add back goodwill amortization                  11,907             24,548
    Adjusted net income                   $29,062  $90,221  $89,643  $227,908

    Earnings per share:
       Reported basic earnings per share     $.25     $.68     $.78     $1.78
       Goodwill amortization                           .10                .21
       Adjusted basic earnings per share     $.25     $.78     $.78     $1.99
       Reported diluted earnings per
        share                                $.25     $.68     $.77     $1.77
       Goodwill amortization                           .10                .21
       Adjusted diluted earnings per
        share                                $.25     $.78     $.77     $1.98


    BUSINESS SEGMENT INFORMATION BY INDUSTRY
                                  Three Months Ended        Six Months Ended
    (Unaudited)                        December 31,             December 31,
    (Dollars in thousands)          2001        2000        2001        2000
    Net sales
        Industrial:
           North America         $646,299    $738,005  $1,297,139  $1,508,110
           International          290,446     313,255     586,737     621,339
        Aerospace                 288,312     294,425     600,812     564,813
        Other                     212,273     121,934     428,509     258,488
    Total                      $1,437,330  $1,467,619  $2,913,197  $2,952,750

    Segment operating income
        Industrial:
           North America          $23,576     $95,060     $64,041    $201,999
           International            8,235      21,004      28,063      45,268
        Aerospace                  46,446      51,097     103,338      95,373
       Other                        9,429       6,989      26,421      18,854
    Total segment operating
     income                        87,686     174,150     221,863     361,494
    Corporate general and
     administrative expenses       15,674      20,346      32,613      37,730
    Income from operations
     before interest
     expense and other             72,012     153,804     189,250     323,764
    Interest expense               21,555      25,607      42,009      46,775
    Other expense (income)          3,469       6,781       7,763     (38,297)
    Income before income taxes    $46,988    $121,416    $139,478    $315,286

    Note:  Income before income taxes for the three and six months ended
    December 31, 2000 includes $13,854 ($7,251 in Industrial North America;
    $2,921 in Industrial International; $1,933 in Aerospace; $1,083 in Other;
    and $666 in Other expense (income)) and $28,563 ($13,942 in Industrial
    North America; $5,846 in Industrial International; $3,793 in Aerospace;
    $2,171 in Other; and $2,811 in Other expense (income)) of goodwill
    amortization, respectively.


    BUSINESS SEGMENT INFORMATION BY INDUSTRY
    EXCLUDING GOODWILL AMORTIZATION
                                  Three Months Ended       Six Months Ended
    (Unaudited)                       December 31,            December 31,
    (Dollars in thousands)         2001        2000        2001        2000
    Net sales
        Industrial:
           North America         $646,299    $738,005  $1,297,139  $1,508,110
           International          290,446     313,255     586,737     621,339
        Aerospace                 288,312     294,425     600,812     564,813
        Other                     212,273     121,934     428,509     258,488
    Total                      $1,437,330  $1,467,619  $2,913,197  $2,952,750
    Segment operating income

        Industrial:
           North America          $23,576    $102,311     $64,041    $215,941
           International            8,235      23,925      28,063      51,114
        Aerospace                  46,446      53,030     103,338      99,166
        Other                       9,429       8,072      26,421      21,025
    Total segment operating
     income                        87,686     187,338     221,863     387,246
    Corporate general and
     administrative expenses       15,674      20,346      32,613      37,730
    Income from operations
     before interest
     expense and other             72,012     166,992     189,250     349,516
    Interest expense               21,555      25,607      42,009      46,775
    Other expense (income)          3,469       6,115       7,763     (41,108)
    Income before income taxes    $46,988    $135,270    $139,478    $343,849

    Note: Amounts for the three and six months ended December 31, 2000
    eliminates goodwill amortization, reflecting the Company's early adoption
    of FAS 142.  It is intended to assist investors in making year-over-year
    comparisons with the three and six months ended December 31, 2001.


    CONSOLIDATED BALANCE SHEET
    (Unaudited)
    (Dollars in
     thousands)                    December 31,      2001              2000
    Assets
    Current assets:
    Cash and cash equivalents                      $28,883           $71,529
    Restricted investments                          92,912
    Accounts receivable, net                       813,638           870,510
    Inventories                                  1,110,732         1,065,313
    Prepaid expenses                                43,055            36,455
    Deferred income taxes                          101,303            83,296
    Assets held for sale                                             239,356
    Total current assets                         2,190,523         2,366,459
    Plant and equipment, net                     1,701,925         1,496,932
    Excess cost of investments over net
     assets acquired                             1,074,500           847,117
    Other assets                                   581,870           597,863
    Total assets                                $5,548,818        $5,308,371

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $493,278          $540,368
    Accounts payable                               336,454           378,778
    Accrued liabilities                            449,027           403,053
    Accrued domestic and foreign taxes              60,605            55,945
    Total current liabilities                    1,339,364         1,378,144
    Long-term debt                               1,063,061           981,953
    Pensions and other postretirement
     benefits                                      216,093           307,226
    Deferred income taxes                          145,700           104,144
    Other liabilities                              199,556            79,759
    Shareholders' equity                         2,585,044         2,457,145
    Total liabilities and shareholders'
     equity                                     $5,548,818        $5,308,371



    CONSOLIDATED STATEMENT OF CASH FLOWS
    (Unaudited)                                  Six Months Ended December 31,
    (Dollars in thousands)                           2001               2000
    Cash flows from operating
     activities:
    Net income                                     $89,643           $203,360
    Depreciation and amortization                  122,516            133,554
    Net change in receivables,
     inventories, and trade payables               135,699            (47,160)
    Net change in other assets and
     liabilities                                    (2,582)           (76,757)
    Other, net                                       5,060            (38,281)
    Net cash provided by operating
     activities                                    350,336            174,716
    Cash flows from investing
     activities:
    Acquisitions (less cash acquired of
     $343 in 2001 and $8,255 in 2000)             (310,178)          (485,235)
    Capital expenditures                          (113,119)          (169,573)
    Other, net                                     (14,176)           100,772
    Net cash used in investing
     activities                                   (437,473)          (554,036)
    Cash flows from financing
     activities:
    Net (payments for) proceeds from
     common share activity                          (4,710)             3,892
    Net proceeds from debt                         141,216            418,547
    Dividends                                      (41,430)           (38,731)
    Net cash provided by financing
     activities                                     95,076            383,708
    Effect of exchange rate changes on
     cash                                           (2,621)            (1,319)
    Net increase in cash and cash
     equivalents                                     5,318              3,069
    Cash and cash equivalents at
     beginning of period                            23,565             68,460
    Cash and cash equivalents at end of
     period                                        $28,883            $71,529

SOURCE Parker Hannifin Corporation

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

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