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Parker Reports Another Record Year of Sales, Earnings and Cash Flow from Operations; Double Digit Growth in Revenue and EPS

August 01, 2006

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CLEVELAND, Aug. 1 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH) today reported record year end results in sales, earnings and cash flow from operations. The company delivered strong growth in revenues for the year and the quarter as annual sales topped $9 billion for the first time in Parker's 88-year history. Earnings per diluted share for the year and the quarter also reached all time highs, while cash flow from operations reached a record $954.6 million, or 10.2 percent of sales, surpassing last year's record of $853.5 million.

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

For the full year, revenue reached a record $9.4 billion, an increase of 16.3 percent over the previous year, with organic growth driving nearly half of the increase. Income from continuing operations increased 19.7 percent to $638.3 million, and earnings per diluted share from continuing operations increased to $5.28. Earnings per diluted share from continuing operations were $5.36 for the year before the impact of an 8 cents loss on the divestiture of the company's Thermoplastics division in December 2005. In fiscal year 2005, the company had income from continuing operations of $533.2 million, or $4.43 per diluted share, on sales of $8.1 billion.

    The following table is a summary of earnings per diluted share for the
fourth quarter and full fiscal year 2006.  Within the table, fourth quarter
fiscal 2006 includes an expense of 3 cents per diluted share, and total fiscal
year 2006 includes an expense of 18 cents per diluted share, both associated
with FAS 123R.



                                           Fourth Quarter      Total Year
                                           FY 2006  FY 2005  FY 2006  FY 2005

    EPS as Reported                         $1.59    $1.34    $5.57    $5.02

    Discontinued Operations                 $0.04    $0.04    $0.29    $0.59

    EPS from Continuing
     Operations as Reported                 $1.55    $1.30    $5.28    $4.43

    Loss on Sale of Thermoplastics                            $0.08

    EPS from Continuing
     Operations Adjusted                    $1.55    $1.30    $5.36    $4.43

Fourth quarter sales increased 20.4 percent from the prior year, with almost half of the increase coming through organic growth. Sales in the fourth quarter reached $2.6 billion, compared to $2.2 billion in the same period last year. Fourth-quarter income from continuing operations increased 20.4 percent to $187.9 million and fourth quarter earnings per diluted share from continuing operations increased to $1.55. This compares to income from continuing operations of $156.1 million and earnings per diluted share from continuing operations of $1.30 in the same period last year.

"By continuing to execute Parker's Win Strategy, our employees delivered another outstanding year of record results for our shareholders," said Chairman and CEO Don Washkewicz. "We have demonstrated our ability to grow our business year after year after year. In 2006, the company grew by more than 16 percent, nearly half of which was organic. This is the 2nd year in a row in which we've achieved organic growth of more than 8 percent. All segments contributed strongly to this growth, reflecting continued demand around the world for our motion and control technologies. We continue to rank our return on invested capital (ROIC) near the top quartile among our peers. In addition, our ability to generate record levels of cash flow enabled us to continue investing in strategic acquisitions during the year. Our focused and disciplined use of our cash flow allowed us to add nearly $1.0 billion in annualized revenues through 13 acquisitions this year, furthering our reputation as the motion and control industry consolidator of choice."

Segment Results

In the North American Industrial segment, fourth-quarter operating income improved 28.6 percent to $165.2 million on sales of $1.1 billion. For the full year, North American Industrial operating income was up 27.5 percent to $597.2 million on sales of $4.0 billion.

In the International Industrial segment fourth-quarter operating income increased 39.8 percent to $106.3 million on sales of $831.2 million. For the full year, International Industrial operating income was up 32.4 percent to $353.8 million on sales of $2.9 billion.

In the Climate & Industrial Controls segment, fourth-quarter operating income increased 31.2 percent to $31.0 million on sales of $293.9 million. For the full year, Climate & Industrial Controls operating income was up 11.2 percent to $83.3 million on sales of $985.1 million.

In the Aerospace segment, fourth-quarter operating income increased 18.4 percent to $64.4 million on sales of $419.9 million. For the full year, Aerospace reported operating income up 11 percent to $221.0 million on sales of $1.5 billion.

Outlook

The company projects earnings from continuing operations for fiscal year 2007 to range from $5.80 to $6.30 per diluted share.

"Our proven mix of organic and acquisitive growth, our balance of OEM and MRO sales, and our past, present and future execution of the Parker Win Strategy lead us to project another year of strong sales and earnings in fiscal 2007," added Washkewicz. "We will continue to use our strong cash flow to grow our business through both internal initiatives and strategic acquisitions. In addition, the diversity of the many markets we serve in the motion and control industry helps mitigate market risk, counter business cyclicality and create ever widening opportunities for profitable growth."

"Going forward, we will continue to rely on the dedication of our talented employees, the expertise of our global distribution network, and the opportunities provided by our customers to deliver value to shareholders."

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 today at 10:00 a.m. ET, on the company's investor information web site, http://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 $9 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 57,000 people in 46 countries around the world. Parker has increased its annual dividends paid to shareholders for 50 consecutive years, among the top five longest-running dividend-increase records in the S&P 500 index. 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:

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 and innovation 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; the company's ability to manage costs related to employee retirement and health care benefits and insurance; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation and interest rates. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them.



    PARKER HANNIFIN CORPORATION - JUNE 30, 2006
    CONSOLIDATED STATEMENT OF INCOME

                        Three Months Ended June 30,       Year Ended June 30,
    (Dollars in thousands
     except per share amounts)  2006         2005         2006         2005

    Net sales               $2,616,732   $2,172,497   $9,385,888   $8,068,805
    Cost of sales            2,053,991    1,708,074    7,367,618    6,391,477
    Gross profit               562,741      464,423    2,018,270    1,677,328
    Selling, general and
     administrative expenses   277,087      232,795    1,036,646      860,278
    Interest expense            18,667       16,375       75,763       66,869
    Other expense, net           1,661          342        5,903       11,910
    Income from continuing
     operations before
     income taxes              265,326      214,911      899,958      738,271
    Income taxes                77,445       58,840      261,682      205,105
    Income from continuing
     operations                187,881      156,071      638,276      533,166
    Discontinued operations      6,007        5,341       34,891       71,526
    Net income                $193,888     $161,412     $673,167     $604,692

    Earnings per share:
       Basic earnings per
        share from continuing
        operations               $1.57        $1.32        $5.35        $4.49
       Discontinued operations     .05          .04          .30          .60
       Basic earnings per
        share                    $1.62        $1.36        $5.65        $5.09
       Diluted earnings per
        share from continuing
        operations               $1.55        $1.30        $5.28        $4.43
       Discontinued operations     .04          .04          .29          .59
       Diluted earnings
        per share                $1.59        $1.34        $5.57        $5.02

    Average shares
     outstanding during
     period - Basic        119,687,216  118,816,542  119,211,192  118,794,564
    Average shares
     outstanding during
     period - Diluted      121,572,305  120,191,274  120,884,182  120,449,006

    Cash dividends per
     common share                 $.23         $.20         $.92         $.78

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



    BUSINESS SEGMENT INFORMATION BY INDUSTRY
                           Three Months Ended June 30,    Year Ended June 30,
    (Dollars in thousands)         2006        2005        2006        2005
    Net sales
        Industrial:
           North America       $1,071,719    $940,071  $3,993,370  $3,516,627
           International          831,200     642,902   2,902,508   2,398,439
        Aerospace                 419,875     364,023   1,504,922   1,359,431
        Climate & Industrial
         Controls                 293,938     225,501     985,088     794,308
    Total                      $2,616,732  $2,172,497  $9,385,888  $8,068,805

    Segment operating income
        Industrial:
           North America         $165,185    $128,409    $597,204    $468,213
           International          106,318      76,040     353,760     267,207
        Aerospace                  64,430      54,408     221,005     199,187
        Climate & Industrial
         Controls                  30,974      23,602      83,256      74,843
    Total segment operating
     income                      $366,907    $282,459  $1,255,225  $1,009,450
    Corporate general and
     administrative expenses       40,220      32,351     133,695     111,615
    Income from continuing
     operations before
     interest expense and other   326,687     250,108   1,121,530     897,835
    Interest expense               18,667      16,375      75,763      66,869
    Other expense                  42,694      18,822     145,809      92,695
    Income from continuing
     operations before income
     taxes                       $265,326    $214,911    $899,958    $738,271

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



    CONSOLIDATED BALANCE SHEET

    (Dollars in thousands)   June 30,                 2006              2005
    Assets
    Current assets:
    Cash and cash equivalents                     $171,553          $336,080
    Accounts receivable, net                     1,592,323         1,225,423
    Inventories                                  1,182,878         1,017,045
    Prepaid expenses                                64,238            49,669
    Deferred income taxes                          127,986           127,490
    Total current assets                         3,138,978         2,755,707
    Plant and equipment, net                     1,693,794         1,581,348
    Goodwill                                     2,010,458         1,371,024
    Intangible assets, net                         471,095           239,891
    Other assets                                   859,107           831,595
    Net assets of discontinued operations                             81,138
    Total assets                                $8,173,432        $6,860,703

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                  $72,039           $31,962
    Accounts payable                               770,665           569,047
    Accrued liabilities                            698,014           601,962
    Accrued domestic and foreign taxes             140,387            97,853
    Total current liabilities                    1,681,105         1,300,824
    Long-term debt                               1,059,461           938,424
    Pensions and other postretirement
     benefits                                      811,479         1,056,230
    Deferred income taxes                          118,544            35,340
    Other liabilities                              261,640           189,738
    Shareholders' equity                         4,241,203         3,340,147
    Total liabilities and shareholders'
     equity                                     $8,173,432        $6,860,703

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



    CONSOLIDATED STATEMENT OF CASH FLOWS
                                                         Year Ended June 30,
    (Dollars in thousands)                            2006              2005

    Cash flows from operating activities:
    Net income                                    $673,167          $604,692
    Net (income) from discontinued operations      (34,891)          (71,526)
    Depreciation and amortization                  280,971           262,690
    Stock-based compensation                        33,448                 -
    Net change in receivables,
     inventories, and trade payables               (36,278)           48,154
    Net change in other assets and
     liabilities                                    68,517            (8,710)
    Other, net                                     (27,036)           29,064
    Discontinued operations                         (3,259)          (10,858)
    Net cash provided by operating
     activities                                    954,639           853,506
    Cash flows from investing activities:
    Acquisitions (net of cash of $42,429
     in 2006 and $21,720 in 2005)                 (835,981)         (558,569)
    Capital expenditures                          (198,113)         (154,905)
    Proceeds from sale of businesses                92,715           120,000
    Other, net                                      20,236            30,507
    Discontinued operations                           (100)           (2,416)
    Net cash (used in) investing
     activities                                   (921,243)         (565,383)
    Cash flows from financing activities:
    Net proceeds from (payments for)
     common share activity                          16,931           (23,724)
    Net (payments of) debt                        (101,480)          (21,202)
    Dividends                                     (109,643)          (92,612)
    Net cash (used in) financing
     activities                                   (194,192)         (137,538)
    Effect of exchange rate changes on cash         (3,731)            1,648
    Net (decrease) increase in cash and
     cash equivalents                             (164,527)          152,233
    Cash and cash equivalents at
     beginning of period                           336,080           183,847
    Cash and cash equivalents at end of
     period                                       $171,553          $336,080

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

SOURCE Parker Hannifin Corporation
08/01/2006

CONTACT: Media, Christopher M. Farage, Vice President, Corp. Communications, +1-216-896-2750, or cfarage@parker.com, or Financial Analysts, Pamela Huggins, Vice President - Treasurer, +1-216-896-2240, or phuggins@parker.com

Web site: http://www.phstock.com
(PH)

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