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Parker Reports Fiscal 2014 Second Quarter Sales, Net Income and Earnings per Share

January 22, 2014

- Orders increase 5 percent, sales increase 1.3 percent, 3.1 percent organically
- Earnings per diluted share reach $1.66, or $1.24 excluding non-recurring items
- Non-recurring items consist of a joint venture gain of $1.68 per diluted share and asset write downs of $1.26 per diluted share
- Company maintains full year adjusted earnings guidance at midpoint of $6.40 per diluted share

 

CLEVELAND, Jan. 22, 2014 /PRNewswire/ -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2014 second quarter ended December 31, 2013. Fiscal 2014 second quarter sales increased 1.3 percent to $3.11 billion, compared with $3.07 billion in the prior year quarter. Organic growth was 3.1 percent, which excludes an increase of 0.3 percent from acquisitions, a decrease of 0.7 percent from foreign currency translation, and a decrease of 1.4 percent from a joint venture agreement with GE Aviation. Fiscal 2014 second quarter as reported net income was $253.4 million, or $1.66 earnings per diluted share compared with $181.1 million or $1.19 earnings per diluted share in the prior year quarter. Adjusted net income for the fiscal 2014 second quarter was $189.9 million, or $1.24 earnings per diluted share. Fiscal 2014 second quarter adjusted net income and earnings per diluted share exclude asset write downs and a previously announced gain associated with a joint venture agreement between Parker Aerospace and GE Aviation. A reconciliation of as reported net income and earnings per diluted share to adjusted net income and earnings per diluted share is included with the financial tables attached to this news release.

(Logo: http://photos.prnewswire.com/prnh/19990816/PHLOGO )

Cash flow from operations was $540.1 million or 8.5 percent of sales for the first six months of fiscal 2014 compared with $347.3 million or 5.5 percent of sales in the prior year period. Excluding a discretionary contribution to the company's pension plan of $75 million for the first six months of fiscal 2014 cash flow from operations was 9.7 percent of sales.

"Earnings on an adjusted basis were ahead of what we expected for this quarter as we continue to perform well operationally," said Chairman, CEO and President, Don Washkewicz. "With continued positive order growth and modestly improved macro-economic trends, we remain optimistic about stronger operating performance in the second half of fiscal year 2014."

Segment Results

Diversified Industrial Segment: North American second quarter sales increased 0.6 percent to $1.33 billion, and operating income was $200.6 million compared with $190.4 million in the same period a year ago. International second quarter sales increased 4.7 percent to $1.28 billion, and operating income was $134.2 million compared with $125.0 million in the same period a year ago.

Aerospace Systems Segment: Second quarter sales decreased 4.7 percent to $503.8 million, reflecting the impact of the previously announced joint venture between Parker Aerospace and GE Aviation, and operating income was $45.0 million compared with $52.2 million in the same period a year ago.

Orders

Parker reported an increase of 5 percent in orders for the quarter ending December 31, 2013, compared with the same quarter a year ago. The company reported the following orders by business:

  • Orders increased 3 percent in the Diversified Industrial North America businesses compared with the same quarter a year ago.
  • Orders increased 6 percent in the Diversified Industrial International businesses compared with the same quarter a year ago.
  • Orders increased 7 percent in the Aerospace Systems segment on a rolling 12-month average basis.

Outlook

For the fiscal year ending June 30, 2014, the company has provided guidance for adjusted earnings per diluted share in the range of $6.20 to $6.60. Fiscal 2014 adjusted earnings guidance includes previously announced restructuring expenses of approximately $0.47 per diluted share, but does not include the following non-recurring items: a gain of $1.68 per diluted share associated with the previously announced joint venture agreement between Parker Aerospace and GE Aviation and asset write downs of $1.26 earnings per diluted share recorded in the quarter ended December 31, 2013. Restructuring expenses were $0.07 per diluted share in the second quarter of fiscal 2014 and $0.13 per diluted share year-to-date.

Washkewicz added, "Operationally, our outlook is essentially unchanged. We are optimistic that modestly improved macro-economic trends will continue and anticipate that we will deliver another strong year."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2014 second quarter results are available to all interested parties via live webcast today at 11:00 a.m. ET, on the company's investor information web site at 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. A replay of the conference call will also be available at www.phstock.com for one year after the call.

With annual sales of $13 billion in fiscal year 2013, 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 mobile, industrial and aerospace markets. The company employs approximately 58,000 people in 49 countries around the world. Parker has increased its annual dividends paid to shareholders for 57 consecutive fiscal 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 www.parker.com, or its investor information web site at www.phstock.com.

Note on Orders

Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly percent change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems segment.
 

Note on Non-GAAP Numbers

This press release contains references to (a) sales growth excluding the effects of acquisitions, divestitures and currency exchange rates, (b) net income without the effect of a gain associated with a joint venture agreement and asset write downs, (c) actual and forecasted earnings per diluted share without the effect of a gain associated with a joint venture agreement and asset write downs, and (d) cash flow excluding discretionary contributions to the company's pension plan. The effects of acquisitions, divestitures, currency exchange rates, gain associated with a joint venture agreement, asset write downs, and pension plan contributions are removed to allow investors and the company to meaningfully evaluate changes in sales, net income, earnings per diluted share, and cash flow on a comparable basis from period to period.

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, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; the ability to realize anticipated benefits of the consolidation of the Climate and Industrial Controls Group; threats associated with and efforts to combat terrorism; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; 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 insurance and employee retirement and health care benefits; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law.

 

PARKER HANNIFIN CORPORATION - DECEMBER 31, 2013

       

CONSOLIDATED STATEMENT OF INCOME

           
                       

(Unaudited)

     

Three Months Ended December 31,

 

Six Months Ended December 31,

(Dollars in thousands except per share amounts)

 

2013

 

2012

 

2013

 

2012

                       

Net sales

     

$ 3,106,006

 

$ 3,065,495

 

$ 6,332,150

 

$ 6,280,430

Cost of sales

   

2,419,971

 

2,421,972

 

4,896,380

 

4,899,419

Gross profit

     

686,035

 

643,523

 

1,435,770

 

1,381,011

Selling, general and administrative expenses

 

398,636

 

381,100

 

805,566

 

762,222

Goodwill and intangible asset impairment

 

188,870

 

-

 

188,870

 

-

Interest expense

   

20,851

 

24,216

 

41,809

 

47,725

Other (income), net

   

(417,638)

 

(24,422)

 

(419,881)

 

(27,623)

Income before income taxes

   

495,316

 

262,629

 

819,406

 

598,687

Income taxes

   

241,912

 

81,515

 

321,682

 

177,625

Net income

     

253,404

 

181,114

 

497,724

 

421,062

Less: Noncontrolling interests

   

116

 

152

 

120

 

359

Net income attributable to common shareholders

$ 253,288

 

$ 180,962

 

$ 497,604

 

$ 420,703

                       

Earnings per share attributable to common shareholders:

             

Basic earnings per share

   

$ 1.70

 

$ 1.21

 

$ 3.34

 

$ 2.82

Diluted earnings per share

   

$ 1.66

 

$ 1.19

 

$ 3.28

 

$ 2.77

                       

Average shares outstanding during period - Basic

 

149,153,599

 

149,001,273

 

149,195,452

 

149,143,561

Average shares outstanding during period - Diluted

 

152,151,024

 

152,198,704

 

151,743,389

 

152,018,025

                       

Cash dividends per common share

   

$ .45

 

$ .41

 

$ .90

 

$ .82

                       

RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE

                       

Net income

   

$ 253,404

 

$ 181,114

 

$ 497,724

 

$ 421,062

Adjustments:

                 

Asset writedowns

   

192,188

 

-

 

192,188

 

-

Gain related to joint venture agreement

 

(255,652)

 

-

 

(255,652)

 

-

Adjusted net income

   

$ 189,940

 

$ 181,114

 

$ 434,260

 

$ 421,062

                       

Earnings per diluted share

   

$ 1.66

 

$ 1.19

 

$ 3.28

 

$ 2.77

Adjustments:

                 

Asset writedowns

   

1.26

 

-

 

1.26

 

-

Gain related to joint venture agreement

 

(1.68)

 

-

 

(1.68)

 

-

Adjusted earnings per diluted share

 

$ 1.24

 

$ 1.19

 

$ 2.86

 

$ 2.77

                       
                       
                       
                       

BUSINESS SEGMENT INFORMATION BY INDUSTRY

             

(Unaudited)

     

Three Months Ended December 31,

 

Six Months Ended December 31,

(Dollars in thousands)

   

2013

 

2012

 

2013

 

2012

Net sales

                   

Diversified Industrial:

                 

North America

   

$ 1,325,402

 

$ 1,317,380

 

$ 2,713,277

 

$ 2,742,659

International

   

1,276,851

 

1,219,459

 

2,547,646

 

2,468,032

Aerospace Systems

   

503,753

 

528,656

 

1,071,227

 

1,069,739

Total

     

$ 3,106,006

 

$ 3,065,495

 

$ 6,332,150

 

$ 6,280,430

Segment operating income

                 
                       

Diversified Industrial:

                 

North America

   

$ 200,628

 

$ 190,431

 

$ 434,826

 

$ 434,506

International

   

134,198

 

125,047

 

307,608

 

281,645

Aerospace Systems

   

45,034

 

52,172

 

102,332

 

114,070

Total segment operating income

 

379,860

 

367,650

 

844,766

 

830,221

Corporate general and administrative expenses

 

46,819

 

45,401

 

94,029

 

85,168

Income before interest and other

       

333,041

 

322,249

 

750,737

 

745,053

Interest expense

   

20,851

 

24,216

 

41,809

 

47,725

Other (income) expense

   

(183,126)

 

35,404

 

(110,478)

 

98,641

Income before income taxes

   

$ 495,316

 

$ 262,629

 

$ 819,406

 

$ 598,687

                       
                       
                       

CONSOLIDATED BALANCE SHEET

                 

(Unaudited)

     

December 31,

 

June 30,

 

December 31,

   

(Dollars in thousands)

       

2013

 

2013

 

2012

   

Assets

                   

Current assets:

                 

Cash and cash equivalents

   

$ 2,139,522

 

$ 1,781,412

 

$ 497,635

   

Accounts receivable, net

   

1,861,849

 

2,062,745

 

1,802,405

   

Inventories

     

1,448,628

 

1,377,405

 

1,515,325

   

Prepaid expenses

   

169,262

 

182,669

 

152,477

   

Deferred income taxes

   

125,612

 

126,955

 

127,905

   

Total current assets

   

5,744,873

 

5,531,186

 

4,095,747

   

Plant and equipment, net

   

1,820,312

 

1,808,240

 

1,844,643

   

Goodwill

     

3,161,699

 

3,223,515

 

3,295,141

   

Intangible assets, net

   

1,220,547

 

1,290,499

 

1,367,978

   

Other assets

   

916,505

 

687,458

 

857,852

   

Total assets

   

$ 12,863,936

 

$ 12,540,898

 

$ 11,461,361

   
                       

Liabilities and equity

                 

Current liabilities:

                 

Notes payable

   

$ 1,217,292

 

$ 1,333,826

 

$ 510,006

   

Accounts payable

   

1,074,512

 

1,156,002

 

1,073,233

   

Accrued liabilities

   

839,095

 

894,296

 

810,546

   

Accrued domestic and foreign taxes

   

172,204

 

136,079

 

94,475

   

Total current liabilities

   

3,303,103

 

3,520,203

 

2,488,260

   

Long-term debt

   

1,507,019

 

1,495,960

 

1,509,238

   

Pensions and other postretirement benefits

 

1,303,527

 

1,372,437

 

1,704,349

   

Deferred income taxes

   

112,561

 

102,920

 

128,892

   

Other liabilities

   

339,440

 

307,897

 

301,633

   

Shareholders' equity

   

6,295,226

 

5,738,426

 

5,325,717

   

Noncontrolling interests

   

3,060

 

3,055

 

3,272

   

Total liabilities and equity

   

$ 12,863,936

 

$ 12,540,898

 

$ 11,461,361

   
                       
                       

CONSOLIDATED STATEMENT OF CASH FLOWS

             

(Unaudited)

     

Six Months Ended December 31,

       

(Dollars in thousands)

   

2013

 

2012

       
                       

Cash flows from operating activities:

               

Net income

     

$ 497,724

 

$ 421,062

       

Depreciation and amortization

   

170,090

 

163,827

       

Stock incentive plan compensation

   

75,370

 

46,527

       

Goodwill and intangible asset impairment

 

188,870

 

-

       

Gain on deconsolidation of subsidiary

 

(412,612)

 

-

       

Gain on sale of businesses

   

-

 

(12,708)

       

Net change in receivables, inventories, and trade payables

53,841

 

102,612

       

Net change in other assets and liabilities

 

(80,362)

 

(408,895)

       

Other, net

     

47,188

 

34,913

       

Net cash provided by operating activities

 

540,109

 

347,338

       

Cash flows from investing activities:

               

Acquisitions (net of cash of $33,160 in 2012)

 

728

 

(621,716)

       

Capital expenditures

   

(111,847)

 

(140,221)

       

Proceeds from sale of plant and equipment

 

8,790

 

14,173

       

Proceeds from sale of businesses

   

-

 

68,569

       

Proceeds from deconsolidation of subsidiary

 

202,498

 

-

       

Other, net

     

(728)

 

(7,765)

       

Net cash provided by (used in) investing activities

99,441

 

(686,960)

       

Cash flows from financing activities:

               

Net payments for common stock activity

 

(81,784)

 

(101,160)

       

Acquisition of noncontrolling interests

 

-

 

(1,072)

       

Net (payments for) proceeds from debt

 

(116,834)

 

168,712

       

Dividends

     

(134,718)

 

(123,328)

       

Net cash (used in) financing activities

 

(333,336)

 

(56,848)

       

Effect of exchange rate changes on cash

 

51,896

 

55,788

       

Net increase (decrease) in cash and cash equivalents

 

358,110

 

(340,682)

       

Cash and cash equivalents at beginning of period

 

1,781,412

 

838,317

       

Cash and cash equivalents at end of period

 

$ 2,139,522

 

$ 497,635

       
                       
                       

RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE

   

(Unaudited)

                   

(Amounts in dollars)

                 
         

Fiscal Year

           
         

2014

           

Forecasted earnings per diluted share

 

$6.62 to $7.02

           

Adjustments:

                 

Asset writedowns

   

$1.26

           

Gain related to joint venture agreement

 

$(1.68)

           

Adjusted forecasted earnings per diluted share

 

$6.20 to $6.60

           
                       

 

SOURCE Parker Hannifin Corporation

Media - Aidan Gormley, Director, Corporate Communications 216/896-3258, aidan.gormley@parker.com, Financial Analysts - Pamela Huggins, Vice President - Treasurer 216/896-2240, phuggins@parker.com

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