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Parker Reports Annual Sales Up 11 Percent, Earnings Affected by U.S. Industrial Slump

July 30, 2001

CLEVELAND, July 30 /PRNewswire/ -- As the manufacturing recession continues, Parker Hannifin Corporation (NYSE: PH) today said the fourth quarter, which usually is a strong one, weighed on the company's full-year results. Quarterly net income excluding costs associated with operating realignments and other corporate accruals was $66.8 million, or 57 cents per diluted share, compared with last year's fourth-quarter income of $113 million, or 99 cents per diluted share. For the full year, the company earned $340.8 million, or $2.96 per diluted share, compared with $368.2 million, or $3.31 per diluted share, in the prior year. The current-year results reflect a net benefit of five cents per diluted share from non-recurring items, including a gain on the sale of real estate, offset by the previously noted operating-realignment actions and accruals; and the early retirement of debt. These results also reflect higher interest expense and nearly 4 million additional shares outstanding issued for acquisitions.

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

Acquisitions contributed much of the increase in annual revenues, which reached $5.98 billion, up 11 percent from last year's sales record. "The acquisitions we've made bring tremendous potential, not only contributing to the top line, but strategically and operationally," said Parker CEO Don Washkewicz.

Noting that American industry is experiencing its first major setback since the early 90s, Washkewicz said, "We've had to be fast and decisive in our response to this downturn. Our manufacturing facilities were quick to adjust to depressed market conditions, by consolidating operations, accelerating acquisition integration and implementing spending cuts in all areas. These immediate moves are painful and costly, but the flexibility to align ourselves with demand keeps us strong and focused."

Operating Results & Supply Chain Initiatives

For the quarter and the year, Parker Aerospace led the company's operating performance with higher income and margins attributed to operating realignments and lean initiatives made throughout the business during fiscal year 2000, when its major markets were down. Operating income in the Aerospace segment was up more than 20 percent for the year, with an annual operating margin of 18.2 percent.

Conditions and comparisons were tougher for both the company's North American and International industrial markets, particularly in the fourth quarter. In the International Industrial business, operating income without operating realignment costs was 17.3-percent lower in the quarterly comparison, but 5.5-percent higher annually, at a 7.7-percent return on sales. Quarterly operating income without realignment items in the North American Industrial business was down 57.5 percent, while the annual income comparison was 11.4-percent lower. For the year, the North American Industrial margin was 11.4 percent.

The company noted that with this report, further detail is provided with the addition of an "Other" segment, which includes businesses outside of the Industrial and Aerospace segments. This new classification includes the company's climate controls and Astron businesses, for which combined annual revenue is $556.8 million. Operating income without realignment items for this segment was down 16.7 percent for the quarter and 9.3 percent for the year, with an annual return on sales of 7.7 percent.

"Beyond actions we've taken for the current climate, we're also taking aggressive steps across our supply chain to improve operating margins for the long term," said Washkewicz. "Specifically, we're securing company-wide procurement contracts. We are expanding lean initiatives worldwide; implementing those that have proven so effective at Aerospace everywhere else in the company. The fastest-paying rewards are in customer service, inventory management and better asset utilization."

"And we continue to build on our greatest growth assets -- our people, our products and our ability to provide engineered systems and solutions that yield greater returns for us and our customers."


The company noted it remains cautious in its outlook for the next quarter and the fiscal year. Going forward, with its early adoption of FAS 142 provisions, the company will not amortize goodwill, accounting for 44 cents in the new fiscal year. After this effect, Parker said it expects first-quarter earnings to be between 50 and 65 cents per share, and, with the beginnings of an economic recovery anticipated in the second half, fiscal year 2002 earnings are expected to range from $2.90 to $3.35 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 of $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 46 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 in North American industrial markets and the company's ability to achieve anticipated benefits associated with announced inventory reductions and restructuring and acquisition-integration activities. 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; 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 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.


    (Dollars in thousands       Three Months Ended           Year Ended
     except per share                June 30,                  June 30,
     amounts)                   2001         2000         2001         2000

    Net sales               $1,484,796   $1,488,702   $5,979,604   $5,385,618
    Cost of sales            1,195,520    1,143,041    4,728,156    4,186,850
    Gross profit               289,276      345,661    1,251,448    1,198,768
    Selling, general and
     expenses                  188,346      156,347      679,963      575,906
    Other income
       Interest expense        (19,344)     (16,041)     (90,362)     (59,183)
       Interest and other
        income, net             (5,062)        (796)      52,473       (1,492)
                               (24,406)     (16,837)     (37,889)     (60,675)
    Income before income
     taxes                      76,524      172,477      533,596      562,187
    Income taxes                27,166       59,505      189,426      193,955
    Income before
     extraordinary item         49,358      112,972      344,170      368,232
    Extraordinary item -
     extinguishment of
     debt                                                 (3,378)
    Net income                 $49,358     $112,972     $340,792     $368,232

    Earnings per share:
       Basic earnings per
        share before
        extraordinary item        $.43        $1.00        $3.01        $3.34
       Extraordinary item
        - extinguishment
        of debt                      -            -         (.03)           -
       Basic earnings per
        share                     $.43        $1.00        $2.98        $3.34
       Diluted earnings
        per share before
        extraordinary item        $.42         $.99        $2.99        $3.31
       Extraordinary item
        - extinguishment
        of debt                      -            -         (.03)           -
       Diluted earnings
        per share                 $.42         $.99        $2.96        $3.31

    Average shares
     outstanding during
     period - Basic        114,843,825  113,691,025  114,304,977  110,330,711
    Average shares
     outstanding during
     period - Diluted      115,615,197  114,481,201  115,064,447  111,244,632

    Cash dividends per
     common share                 $.18         $.17         $.70         $.68

                                     Three Months Ended        Year Ended
                                         June 30,                June 30,
    (Dollars in thousands)         2001         2000        2001       2000
    Net sales
           North America         $691,119     $716,886  $2,941,697 $2,486,372
           International          311,117      316,933   1,275,516  1,175,880
        Aerospace                 323,365      297,218   1,205,624  1,138,328
        Other                     159,195      157,665     556,767    585,038
    Total                      $1,484,796   $1,488,702  $5,979,604 $5,385,618

    Segment operating income
           North America          $37,990     $116,100    $322,786   $379,251
           International           14,755       22,086      92,561     84,317
        Aerospace                  60,988       54,597     218,851    175,710
       Other                       10,988       14,446      41,451     47,084
    Total segment operating
     income                      $124,721     $207,229    $675,649   $686,362
    Corporate general and
     administrative expenses       29,970       16,075      85,738     58,210
    Income from operations
     before interest
     expense and other             94,751      191,154     589,911    628,152
    Interest expense               19,344       16,041      90,362     59,183
    Other                          (1,117)       2,636     (34,047)     6,782
    Income before income taxes    $76,524     $172,477    $533,596   $562,187


    (Dollars in
     thousands)       June 30,      2001                     2000
    Current assets:
    Cash and cash equivalents     $23,565                  $68,460
    Accounts receivable, net      922,325                  840,040
    Inventories                 1,008,864                  974,196
    Prepaid expenses               39,486                   32,706
    Deferred income taxes          91,439                   73,711
    Assets held for sale          110,683                  164,000
    Total current assets        2,196,362                2,153,113
    Plant and equipment, net    1,548,688                1,340,915
    Other assets                1,592,611                1,152,271
    Total assets               $5,337,661               $4,646,299

    Liabilities and
     shareholders' equity
    Current liabilities:
    Notes payable                $546,502                 $335,298
    Accounts payable              367,806                  372,666
    Accrued liabilities           436,947                  394,131
    Accrued domestic and
     foreign taxes                 61,874                   84,208
    Total current liabilities   1,413,129                1,186,303
    Long-term debt                857,078                  701,762
    Pensions and other
     postretirement benefits      318,527                  299,741
    Deferred income taxes         131,708                   77,939
    Other liabilities              88,304                   71,096
    Shareholders' equity        2,528,915                2,309,458
    Total liabilities and
     shareholders' equity      $5,337,661               $4,646,299

                                         Year Ended June 30,
    (Dollars in thousands)         2001                     2000

    Cash flows from operating
    Net income                   $340,792                 $368,232
    Depreciation and
     amortization                 264,527                  206,408
    Net effect of
     extraordinary loss             3,378                        -
    Net change in receivables,
     inventories, and trade
     payables                     (42,557)                  (3,346)
    Net change in other assets
     and liabilities              (14,729)                 (21,181)
    Other, net                    (19,246)                 (12,073)
    Net cash provided by
     operating activities         532,165                  538,040
    Cash flows from investing
    Acquisitions (less cash
     acquired of $10,143 in
     2001 and $1,158 in 2000)    (583,254)                (351,011)
    Capital expenditures         (334,748)                (230,482)
    Other, net                     98,174                    1,784
    Net cash used in investing
     activities                  (819,828)                (579,709)
    Cash flows from financing
    Net proceeds from common
     share activity                15,971                    1,202
    Net proceeds from debt        308,087                  154,621
    Dividends                     (79,921)                 (74,963)
    Net cash provided by
     financing activities         244,137                   80,860
    Effect of exchange rate
     changes on cash               (1,369)                  (4,008)
    Net (decrease) increase in
     cash and cash equivalents    (44,895)                  35,183
    Cash and cash equivalents
     at beginning of period        68,460                   33,277
    Cash and cash equivalents
     at end of period             $23,565                  $68,460

SOURCE Parker Hannifin Corporation

CONTACT: 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, Timothy K. Pistell, Treasurer, +1-216-896-2130, or tpistell@parker.com , both of Parker Hannifin Corporation/

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