For the 2007 fiscal year, the company surpassed $10 billion in sales for the first time in its 89 year history. Sales reached a record $10.7 billion, an increase of 14.2 percent from $9.4 billion in the previous year. Income from continuing operations increased 30 percent to $830.0 million compared to $638.3 million a year ago, and earnings per diluted share from continuing operations increased 32.8 percent to $7.01 compared to $5.28 a year ago. Cash flow from operating activities reached a record $955.0 million, or 8.9 percent of sales.
For the fourth quarter of fiscal 2007, sales increased 9.8 percent to $2.9 billion, compared to $2.6 billion in the same period last year. Fourth quarter income from continuing operations increased 15.6 percent to $217.2 million compared to $187.9 million a year ago, and fourth quarter earnings per diluted share from continuing operations increased 18.7 percent to $1.84 from $1.55 a year ago.
"I want to thank our employees for their continued commitment to premier customer service, profitable growth and financial performance," said Chairman, CEO and President Don Washkewicz. "These three pillars of Parker's Win Strategy enabled us to deliver record quarterly and annual results for our shareholders."
"In surpassing the $10 billion sales milestone, we continue to demonstrate our propensity to grow. Our compound annual growth rate over the last 35 years is in excess of 11 percent. This year, we grew by more than 14 percent, or more than three times GDP. This exceeded our Win Strategy goal to grow both organically and through disciplined acquisitions at a 10 percent compound annual rate. Of the 14 percent growth, 5 percent was organic, 6 percent was from strategic acquisitions, and the remainder was from the effects of foreign currency exchange rates. We're especially pleased with gains we've made in our Industrial International segment, where revenues grew by 34 percent and operating income grew by 51 percent. Margins in this segment also reached an all time high and continue to approach those in our North American segment. Overall, our revenues and profits are more balanced regionally than ever before, which speaks to the growing demand around the world for our motion and control technologies. By executing our Win Strategy, we delivered record earnings per share in the quarter and for the year. Total shareholder return for the year was 28 percent, or 35 percent higher than the S&P 500, and our return on invested capital remains at the top quartile among our peers."
"We also generated close to $1 billion in annual cash flow from operating activities, which allowed us to both maintain our strong balance sheet and use cash wisely to invest in our company. We continued to invest in strategic acquisitions this year, purchasing eleven companies that added nearly $260 million in annualized revenues. We spent $433 million to repurchase 5.4 million shares, and we made discretionary contributions of $161 million to our pension funds. In fiscal 2007, we increased dividends 13 percent, paying out approximately $121 million to shareholders, maintaining our dividend increase record that spans 51 years."
In the Industrial North America segment, fourth-quarter sales decreased 1.6 percent to $1.1 billion, and operating income decreased 0.4 percent from the prior year to $164.6 million. For the full year, Industrial North America sales increased 1.8 percent to $4.1 billion, and operating income increased 0.2 percent from the prior year to $598.4 million.
In the Industrial International segment, fourth-quarter sales increased 30.3 percent to $1.1 billion, and operating income increased 34.9 percent from the prior year to $143.4 million. For the full year, Industrial International sales increased 34.4 percent to $3.9 billion, and operating income increased 50.7 percent from the prior year to $533.1 million.
In the Aerospace segment, fourth-quarter sales increased 5.9 percent to $444.6 million, and operating income increased 4.5 percent from the prior year to $67.3 million. For the full year, Aerospace sales increased 12.0 percent to $1.7 billion, and operating income increased 22.1 percent from the prior year to $269.9 million.
In the Climate & Industrial Controls segment, fourth-quarter sales decreased 0.7 percent to $291.9 million, and operating income decreased 18.3 percent from the prior year to $25.3 million. For the full year, Climate & Industrial Controls sales increased 8.4 percent to $1.1 billion, and operating income decreased 1.1 percent from the prior year to $82.3 million.
In addition to financial results, Parker also reported an increase of 3 percent in total orders for the quarter ending June 30 compared to the same quarter a year ago. Parker reported the following orders by operating segment:
For fiscal year 2008, the company issued guidance for earnings from continuing operations in the range of $7.20 to $7.60 per diluted share.
"Our employees have embraced The Parker Win Strategy as a proven roadmap to operational success and profitable growth," added Washkewicz. "We remain uniquely positioned to meet the needs of both the OEM and MRO segments of the many diversified global motion and control markets we serve. Going forward, we expect to continue providing solid, dependable performance."
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 $10 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 43 countries around the world. Parker has increased its annual dividends paid to shareholders for 51 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 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, 2007 CONSOLIDATED STATEMENT OF INCOME Three Months Ended June 30, Year Ended June 30, (Dollars in thousands 2007 2006 2007 2006 except per share amounts) Net sales $2,874,365 $2,616,732 $10,718,059 $9,385,888 Cost of sales 2,223,756 2,053,991 8,272,949 7,367,618 Gross profit 650,609 562,741 2,445,110 2,018,270 Selling, general and administrative expenses 333,434 277,087 1,226,861 1,036,646 Income from operations 317,175 285,654 1,218,249 981,624 Interest expense 21,535 18,667 83,414 75,763 Other (income) expense, net (2,294) 1,661 (24,447) 5,903 Income from continuing operations before income taxes 297,934 265,326 1,159,282 899,958 Income taxes 80,748 77,445 329,236 261,682 Income from continuing operations 217,186 187,881 830,046 638,276 Discontinued operations 6,007 34,891 Net income $217,186 $193,888 $830,046 $673,167 Earnings per share: Basic earnings per share from continuing operations $1.88 $1.57 $7.13 $5.35 Discontinued operations .05 .30 Basic earnings per share $1.88 $1.62 $7.13 $5.65 Diluted earnings per share from continuing operations $1.84 $1.55 $7.01 $5.28 Discontinued operations .04 .29 Diluted earnings per share $1.84 $1.59 $7.01 $5.57 Average shares outstanding during period - Basic 115,652,989 119,687,216 116,428,885 119,211,192 Average shares outstanding during period - Diluted 117,896,867 121,572,305 118,329,927 120,884,182 Cash dividends per common share $.26 $.23 $1.04 $.92 BUSINESS SEGMENT INFORMATION BY INDUSTRY Three Months Ended June 30, Year Ended June 30, (Dollars in thousands) 2007 2006 2007 2006 Net sales Industrial: North America $1,054,987 $1,071,719 $4,063,889 $3,993,370 International 1,082,960 831,200 3,900,628 2,902,508 Aerospace 444,558 419,875 1,685,431 1,504,922 Climate & Industrial Controls 291,860 293,938 1,068,111 985,088 Total $2,874,365 $2,616,732 $10,718,059 $9,385,888 Segment operating income Industrial: North America $164,583 $165,185 $598,405 $597,204 International 143,380 106,318 533,136 353,760 Aerospace 67,309 64,430 269,931 221,005 Climate & Industrial Controls 25,297 30,974 82,316 83,256 Total segment operating income $400,569 $366,907 $1,483,788 $1,255,225 Corporate general and administrative expenses 57,909 40,220 179,077 133,695 Income from continuing operations before interest expense and other 342,660 326,687 1,304,711 1,121,530 Interest expense 21,535 18,667 83,414 75,763 Other expense 23,191 42,694 62,015 145,809 Income from continuing operations before income taxes $297,934 $265,326 $1,159,282 $899,958 PARKER HANNIFIN CORPORATION - JUNE 30, 2007 CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, 2007 2006 Assets Current assets: Cash and cash equivalents $172,706 $171,553 Accounts receivable, net 1,737,748 1,592,323 Inventories 1,265,802 1,182,878 Prepaid expenses 69,655 64,238 Deferred income taxes 140,264 127,986 Total current assets 3,386,175 3,138,978 Plant and equipment, net 1,736,372 1,693,794 Goodwill 2,254,069 2,010,458 Intangible assets, net 595,607 471,095 Other assets 469,190 859,107 Total assets $8,441,413 $8,173,432 Liabilities and shareholders' equity Current liabilities: Notes payable $195,384 $72,039 Accounts payable 788,560 770,665 Accrued liabilities 788,562 698,014 Accrued domestic and foreign taxes 152,739 140,387 Total current liabilities 1,925,245 1,681,105 Long-term debt 1,089,916 1,059,461 Pensions and other postretirement benefits 354,398 811,479 Deferred income taxes 114,219 118,544 Other liabilities 245,970 261,640 Shareholders' equity 4,711,665 4,241,203 Total liabilities and shareholders' equity $8,441,413 $8,173,432 CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended June 30, (Dollars in thousands) 2007 2006 Cash flows from operating activities: Net income $830,046 $673,167 Net (income) from discontinued operations (34,891) Depreciation and amortization 294,566 280,971 Stock-based compensation 33,203 33,448 Net change in receivables, inventories, and trade payables (86,663) (36,278) Net change in other assets and liabilities (51,585) 68,517 Other, net (64,560) (27,036) Discontinued operations (3,259) Net cash provided by operating activities 955,007 954,639 Cash flows from investing activities: Acquisitions (net of cash of $15,591 in 2007 and $42,429 in 2006) (378,639) (835,981) Capital expenditures (237,827) (198,113) Proceeds from sale of businesses 92,715 Other, net 36,705 20,236 Discontinued operations (100) Net cash (used in) investing activities (579,761) (921,243) Cash flows from financing activities: Net (payments for) proceeds from common share activity (364,339) 16,931 Net proceeds from (payments of) debt 107,073 (101,480) Dividends (121,263) (109,643) Net cash (used in) financing activities (378,529) (194,192) Effect of exchange rate changes on cash 4,436 (3,731) Net increase (decrease) in cash and cash equivalents 1,153 (164,527) Cash and cash equivalents at beginning of period 171,553 336,080 Cash and cash equivalents at end of period $172,706 $171,553
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