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

January 20, 2009

(NYSE: PH), the world leader in motion and control technologies, today reported results for its fiscal 2009 second quarter ending December 31, 2008. Fiscal 2009 second quarter sales were $2.7 billion, a decline of 5.0 percent from $2.8 billion in the same quarter a year ago. Net income declined 26.7 percent to $155.4 million from $211.9 million in the second quarter of fiscal 2008. Earnings per diluted share declined 22.0 percent to 96 cents compared with $1.23 in last year's second quarter. Cash flow from operations for the first six months of fiscal 2009 was $444.5 million, or 7.7 percent of sales.

"Current quarter results reflect the fact that the global recession has deepened and widened in recent months and creates some uncertainty for the remainder of our fiscal year and throughout calendar 2009," said Chairman, CEO and President Don Washkewicz. "Although we are positioned to fare much better in this recession than in the past, current market conditions are unprecedented and have required us to lower our expectations for the year and reduce costs across our operations. As a direct result of the actions we have taken under the Win Strategy during the past seven years, including our ability to adjust and manage inventory on a real-time basis, Parker is better prepared to adapt to changing market circumstances and weather the challenges ahead."

Segment Results

In the Industrial North America segment, second-quarter sales increased slightly to $993.0 million, and operating income declined 24.0 percent to $107.6 million, compared with the same period a year ago.

In the Industrial International segment, second-quarter sales declined 11.5 percent to $1.0 billion, and operating income declined 34.3 percent to $115.1 million, compared with the same period a year ago.

In the Aerospace segment, second-quarter sales increased 10.0 percent to $473.7 million, and operating income increased 34.2 percent to $69.7 million, compared with the same period a year ago.

In the Climate & Industrial Controls segment, second-quarter sales declined 21.8 percent to $179.2 million, and the segment recorded an operating loss of $12.8 million, compared with an operating profit of $5.4 million in the same period a year ago.


In addition to financial results, Parker also reported a decline of 20 percent in total orders for the quarter ending December 31, 2008, compared with the same quarter a year ago. Parker reported the following orders by operating segment:

  • Orders declined 18 percent in the Industrial North America segment, compared with the same quarter a year ago.

  • Orders declined 28 percent in the Industrial International segment, compared with the same quarter a year ago.

  • Orders increased 2 percent in the Aerospace segment on a rolling 12 month average basis.

  • Orders declined 28 percent in the Climate and Industrial Controls segment, compared with the same quarter a year ago.


    For fiscal 2009, the company revised guidance for earnings from continuing operations to the range of $3.85 to $4.25 per diluted share. Previous guidance for earnings from continuing operations was $5.35 to $5.75 per diluted share.

    "While the outlook holds many challenges, Parker has a seasoned management team that has experience managing through a downturn," added Washkewicz. "Workforce and expense reductions have been implemented throughout the company and contingency plans are in place should further actions become necessary. In short, we are prepared to adjust our costs appropriately to reflect changing demand levels. At the same time, we will stay vigilantly focused on long-term growth and are confident that we will emerge in an even stronger position as demand in our end markets improves."

    NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal second-quarter results are 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 $12 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 mobile, industrial and aerospace markets. The company employs approximately 62,000 people in 48 countries around the world. Parker has increased its annual dividends paid to shareholders for 52 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.

    Notes 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 the Industrial North America, Industrial International, and Climate and Industrial Controls segments, and the year- over-year 12-month rolling average of orders in the Aerospace segment.

    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 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 recession, and growth, innovation and global diversification 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 or significant changes in financial condition; uncertainties surrounding timing, successful completion or integration of acquisitions; threats associated with and efforts to combat terrorism; uncertainties surrounding the ultimate resolution of outstanding legal proceedings; 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, 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.

        (Unaudited)              Three Months Ended         Six Months Ended
        (Dollars in thousands        December 31,              December 31,
         except per share      2008            2007        2008           2007
        Net sales           $2,688,656      $2,829,060   $5,753,344   $5,616,316
        Cost of sales        2,121,450       2,194,137    4,458,672    4,316,434
        Gross profit           567,206         634,923    1,294,672    1,299,882
        Selling, general
         and administrative
         expenses              337,183         318,961      669,866      643,922
        Interest expense        30,307          26,016       58,403       48,437
        Other expense
         (income), net           1,843          (6,224)      11,801       (6,389)
        Income before
         income taxes          197,873         296,170      554,602      613,912
        Income taxes            42,472          84,307      149,025      172,452
        Net income            $155,401        $211,863     $405,577     $441,460
        Earnings per share:
           Basic earnings
            per share             $.97           $1.26        $2.49        $2.61
           Diluted earnings
            per share             $.96           $1.23        $2.47        $2.56
        Average shares
         outstanding during
         period - Basic    160,839,120     168,063,375  162,627,269  168,923,092
        Average shares
         during period -
         Diluted           161,755,586     171,993,863  164,272,066  172,456,317
        Cash dividends
         per common share         $.25            $.21         $.50         $.42
        (Unaudited)                  Three Months Ended      Six Months Ended
        (Dollars in thousands)          December 31,            December 31,
                                     2008        2007        2008        2007
        Net sales
              North America         $993,040    $991,419  $2,100,117  $1,997,247
              International        1,042,741   1,177,749   2,265,933   2,278,637
           Aerospace                 473,667     430,698     952,140     857,988
           Climate & Industrial
            Controls                 179,208     229,194     435,154     482,444
        Total                     $2,688,656  $2,829,060  $5,753,344  $5,616,316
        Segment operating income
              North America         $107,615    $141,680    $268,101    $296,862
              International          115,122     175,227     318,074     358,660
           Aerospace                  69,658      51,917     137,806     109,353
           Climate & Industrial
            Controls                 (12,814)      5,421       2,685      20,927
        Total segment operating
         income                     $279,581    $374,245    $726,666    $785,802
        Corporate general and
         administrative expenses      42,372      40,039      82,746      85,348
        Income from operations
         before interest expense
         and other                   237,209     334,206     643,920     700,454
        Interest expense              30,307      26,016      58,403      48,437
        Other expense                  9,029      12,020      30,915      38,105
        Income before income taxes  $197,873    $296,170    $554,602    $613,912
        (Dollars in thousands)      December 31,           2008              2007
        Current assets:
        Cash and cash equivalents                      $261,990          $197,650
        Accounts receivable, net                      1,682,338         1,745,683
        Inventories                                   1,519,651         1,477,267
        Prepaid expenses                                 69,498            63,774
        Deferred income taxes                           145,131           137,206
        Total current assets                          3,678,608         3,621,580
        Plant and equipment, net                      1,888,023         1,804,979
        Goodwill                                      2,884,187         2,669,678
        Intangible assets, net                        1,236,724           627,702
        Other assets                                    427,649           493,567
        Total assets                                $10,115,191        $9,217,506
        Liabilities and shareholders' equity
        Current liabilities:
        Notes payable                                $1,022,112          $865,058
        Accounts payable                                751,942           756,495
        Accrued liabilities                             777,462           770,016
        Accrued domestic and foreign taxes              116,183           104,919
        Total current liabilities                     2,667,699         2,496,488
        Long-term debt                                1,882,693         1,151,469
        Pensions and other postretirement benefits      480,561           361,605
        Deferred income taxes                           216,131           118,203
        Other liabilities                               286,426           312,505
        Shareholders' equity                          4,581,681         4,777,236
        Total liabilities and shareholders' equity  $10,115,191        $9,217,506
        (Unaudited)                                 Six Months Ended December 31,
        (Dollars in thousands)                            2008              2007
        Cash flows from operating activities:
        Net income                                    $405,577          $441,460
        Depreciation and amortization                  175,885           155,146
        Stock-based compensation                        28,451            30,086
        Net change in receivables,
         inventories, and trade payables                72,151           (90,157)
        Net change in other assets and
         liabilities                                  (247,558)          (42,674)
        Other, net                                      10,009           (20,260)
        Net cash provided by operating activities      444,515           473,601
        Cash flows from investing activities:
        Acquisitions (net of cash of $24,191
         in 2008 and $11,396 in 2007)                 (705,128)         (463,051)
        Capital expenditures                          (174,391)         (118,742)
        Proceeds from sale of plant and equipment       10,550            13,571
        Other, net                                      (2,973)           (2,701)
        Net cash (used in) investing activities       (871,942)         (570,923)
        Cash flows from financing activities:
        Net (payments for) common share activity      (430,080)         (475,943)
        Net proceeds from debt                         911,428           670,344
        Dividends                                      (81,331)          (71,867)
        Net cash provided by financing activities      400,017           122,534
        Effect of exchange rate changes on cash        (36,648)             (268)
        Net (decrease) increase in cash and
         cash equivalents                              (64,058)           24,944
        Cash and cash equivalents at beginning of
         period                                        326,048           172,706
        Cash and cash equivalents at end of period    $261,990          $197,650

    SOURCE Parker Hannifin Corporation


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