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Parker Income Up 122 Percent on 16-Percent Increase in Sales; EPS 90 Cents

April 19, 2004

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CLEVELAND, April 19 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH) today reported a 122-percent increase in net income for the fiscal third quarter ended March 31, 2004. The company earned $107.8 million, or 90 cents per diluted share, on sales of $1.91 billion, compared with net income of $48.7 million, or 42 cents per diluted share, earned on sales of $1.65 billion last year. As previously announced, the current-quarter results include a one-time, discrete tax benefit of 10 cents per diluted share.

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Parker said the earnings improvement was driven by an upsurge in volume throughout the industrial segment, with considerably lower fixed costs from realignment activities and execution of the company's Win Strategy. Organic growth contributed nine percentage points to the 16-percent increase in revenues during the quarter, while currency translation added five points and two points came from acquisitions completed since last year.

"The credit belongs to all of Parker's employees worldwide who endured an unrelenting recession for three years. During that time, they have been implementing our Win Strategy to achieve sustainable margin improvements," said Parker President and CEO Don Washkewicz. "It appears that we may be in the early stages of a broad recovery, and we expect continued growth and increased profitability from strong order momentum." Washkewicz added that the addition of recently acquired Denison is contributing to the company's industrial margins.

Operating income in the North American Industrial businesses was 121-percent higher on a sales increase of 15 percent. The top-line growth was mostly organic, with acquisitions and currency exchange rates adding 2.6 percentage points combined. With the higher volume and lower cost structure, the North American Industrial operating margin improved to 11.1 percent from 5.8 percent last year.

The North American Industrial segment's motion-oriented businesses benefited from strong demand in the mobile original-equipment market (especially agricultural, construction and forestry machinery), as well as in heavy-duty trucks and industrial equipment. In the flow- and process-control businesses, the improved volume was comprised of continued strength in the oil and gas market, as well as a recovery in semiconductors and rebounding demand for process and analytical equipment. The company also noted that its margin mix improved with organic growth in life sciences and microelectronics.

In the International Industrial units, operating income was up 80 percent on a 30-percent sales increase. Favorable currency translation added 16 percent, and volume increased 14 percent, which includes an eight-percent increase in organic revenue, and a six-percent contribution from acquisitions. The international operating margin was 7.9 percent, compared with 5.7 percent last year, reflecting continued strength in the Asia-Pacific region and Latin America, where the company is rapidly gaining market share, and improving performance in Europe from reductions in operating and logistics costs.

Operating income in the company's Climate & Industrial Controls business was 10-percent higher on a 3.4-percent sales increase, with 2.2 percentage points from currency translation. Despite the moderate increase in volume, which came primarily from sales in automotive air conditioning and growth in refrigeration systems, the unit's operating margin improved to 11.8 percent from 11.1 percent. The profitability improvement reflects realignment of facilities and execution of the strategic initiatives in the company's Win Strategy.

Parker Aerospace reported a 4.9-percent sales increase, with a 2.8-percent decline in operating income and an operating margin of 12.6 percent, compared with 13.6 percent last year. With continued softness in the commercial aerospace aftermarket, the margin reflects a revenue mix with a higher proportion of defense business, as well as additional costs associated with pensions and product liability insurance.

In the "Other" segment, operating income increased more than three times, while revenue increased 10.7 percent. The operating margin improved to 5.1 percent from 1.3 percent.

Cash Flow and Inventories

The company continued to post strong cash flow. For the first nine months, cash from operations was $504.5 million, or 9.9 percent of sales. For the same period last year, cash from operations was $326.2 million, which was 6.9 percent of sales.

Ongoing efforts to tighten inventories contributed to the company's strong cash flow results. The company noted that its businesses have continued to reduce inventories throughout the fiscal year, following its trend of more than two years, with the current-year reduction running at almost twice the rate of the prior year.

Year-to-Date Results

Sales in the first nine months of fiscal 2004 were $5.11 billion, compared with $4.75 billion last year. Year-to-date net income was $220.3 million, or $1.85 per diluted share, compared with $147.2 million, or $1.26 per diluted share in fiscal 2003. The current year's results included seven cents per diluted share in realignment costs, while last year's nine-month results included 10 cents per share in realignment costs and an adjustment in equity investment. The increase in the current year-to-date results reflects the strong operating performance by the North American Industrial operations and recently rebounding markets.


The company raised its sales and earnings forecasts for the fiscal year ending June 30, indicating it now expects year-over-year sales growth of about 10 percent. The company estimates full-year earnings between $2.55 and $2.65 per diluted share. Factors influencing the forecast include uncertainties regarding raw-material prices; commercial aerospace volume and mix; and sustainability of current order rates.

"We are encouraged by the strength we're seeing in our industrial markets," said Washkewicz. "We are solidly positioned to achieve our growth and profit objectives as embedded in our Win Strategy."

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 www.phstock.com .

With annual sales approaching $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 46,000 people in 44 countries around the world. Parker has increased annual dividends paid to shareholders for 47 consecutive years, which is among the top five longest-running dividend-increase records in the S&P 500. For more information, visit the company's web site at www.parker.com .

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal third-quarter results is available to all interested parties via live webcast at 10 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 may also complete a pre-call system test and register for e-mail notification of future events and information available from Parker.

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 results. 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.


    (Dollars in thousands        Three Months Ended         Nine Months Ended
     except per share                 March 31,                  March 31,
     amounts)                     2004         2003         2004         2003

    Net sales               $1,906,041   $1,646,844   $5,113,980   $4,749,949
    Cost of sales            1,544,150    1,368,430    4,174,570    3,927,147
    Gross profit               361,891      278,414      939,410      822,802
    Selling, general and
     expenses                  201,464      182,378      571,758      535,775
    Other income
       Interest expense        (17,262)     (20,349)     (56,384)     (59,399)
       Interest and other
        (expense), net            (690)      (1,731)      (2,809)      (3,935)
                               (17,952)     (22,080)     (59,193)     (63,334)
    Income before income
     taxes                     142,475       73,956      308,459      223,693
    Income taxes                34,627       25,293       88,149       76,503
    Net income                $107,848      $48,663     $220,310     $147,190

    Earnings per share:
       Basic earnings per
        share                     $.91         $.42        $1.87        $1.27
       Diluted earnings
        per share                 $.90         $.42        $1.85        $1.26

    Average shares
     outstanding during
     period - Basic        118,242,311  116,506,352  117,545,386  116,339,433
    Average shares
     outstanding during
     period - Diluted      119,637,727  116,890,480  118,803,626  116,872,253

    Cash dividends per
     common share                 $.19         $.19         $.57         $.55

                                    Three Months Ended      Nine Months Ended
    (Unaudited)                          March 31,               March 31,
    (Dollars in thousands)           2004        2003        2004        2003

    Net sales
           North America         $836,136    $727,060  $2,224,548  $2,124,542
           International          541,670     416,434   1,405,333   1,156,014
        Aerospace                 293,718     280,020     832,524     832,741
        Climate & Industrial
         Controls                 181,173     175,132     481,820     484,273
        Other                      53,344      48,198     169,755     152,379
    Total                      $1,906,041  $1,646,844  $5,113,980  $4,749,949

    Segment operating income
           North America          $93,154     $42,166    $192,630    $120,634
           International           42,869      23,852     103,770      72,819
        Aerospace                  37,077      38,140     101,855     123,324
        Climate & Industrial
         Controls                  21,432      19,409      49,405      44,386
        Other                       2,708         630      12,604       6,942
    Total segment operating
     income                      $197,240    $124,197    $460,264    $368,105
    Corporate general and
     administrative expenses       25,489      22,662      73,615      62,155
    Income from operations
     before interest
      expense and other           171,751     101,535     386,649     305,950
    Interest expense               17,262      20,349      56,384      59,399
    Other expense                  12,014       7,230      21,806      22,858
    Income before income taxes   $142,475     $73,956    $308,459    $223,693

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

    (Dollars in
     thousands)        March 31,                      2004              2003

    Current assets:
    Cash and cash equivalents                     $169,956           $52,696
    Accounts receivable, net                     1,190,598           991,131
    Inventories                                    984,900         1,027,939
    Prepaid expenses                                39,192            43,265
    Deferred income taxes                          108,409            85,329
    Total current assets                         2,493,055         2,200,360
    Plant and equipment, net                     1,628,708         1,661,714
    Goodwill                                     1,240,269         1,091,795
    Intangible assets, net                          58,474            56,223
    Other assets                                   810,295           745,995
    Total assets                                $6,230,801        $5,756,087

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $165,448          $410,278
    Accounts payable                               501,899           395,658
    Accrued liabilities                            525,060           468,744
    Accrued domestic and foreign taxes             139,009            34,700
    Total current liabilities                    1,331,416         1,309,380
    Long-term debt                                 968,326           948,164
    Pensions and other postretirement
     benefits                                      955,201           515,378
    Deferred income taxes                           21,643           133,242
    Other liabilities                              163,551           126,032
    Shareholders' equity                         2,790,664         2,723,891
    Total liabilities and shareholders'
     equity                                     $6,230,801        $5,756,087

    (Unaudited)                                  Nine Months Ended March 31,
    (Dollars in thousands)                            2004              2003

    Cash flows from operating activities:
    Net income                                    $220,310          $147,190
    Depreciation and amortization                  189,659           191,018
    Net change in receivables,
     inventories, and trade payables                24,570            32,197
    Net change in other assets and
     liabilities                                   100,061           (98,475)
    Other, net                                     (30,114)           54,238
    Net cash provided by operating
     activities                                    504,486           326,168
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $63,054 in 2004 and $7 in 2003)              (201,101)           (1,999)
    Capital expenditures                          (102,735)         (112,863)
    Other, net                                      27,100            13,722
    Net cash (used in) investing
     activities                                   (276,736)         (101,140)
    Cash flows from financing activities:
    Net proceeds from common share
     activity                                       42,443             3,091
    Net (payments of) debt                        (277,865)         (160,048)
    Dividends                                      (66,845)          (63,739)
    Net cash (used in) financing
     activities                                   (302,267)         (220,696)
    Effect of exchange rate changes on
     cash                                           (1,377)            1,980
    Net (decrease) increase in cash and
     cash equivalents                              (75,894)            6,312
    Cash and cash equivalents at
     beginning of period                           245,850            46,384
    Cash and cash equivalents at end of
     period                                       $169,956           $52,696

SOURCE Parker Hannifin Corporation

CONTACT: Media, Lorrie Paul Crum, VP - Corp. Communications, +1-216-896- 2750, or mobile, +1-216-408-6545, or lcrum@parker.com, or Financial Analysts, Pamela Huggins, VP & Treasurer, +1-216-896-2240, or phuggins@parker.com, both of Parker Hannifin Corporation

Web site: http://www.phstock.com

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