4th Quarter & Fiscal Year 2016
Earnings Release
Parker Hannifin Corporation
August 4, 2016
Exhibit 99.2
Forward-Looking Statements and
Non-GAAP Financial Measures
Safe Harbor 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 implement successfully the company's capital allocation initiatives, including the timing, price and execution of share repurchases;
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; threats associated with and efforts to combat terrorism and cyber-security risks; 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; 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.
This presentation reconciles (a) sales amounts reported in accordance with U.S. GAAP to sales amounts adjusted to remove the effects of acquisitions
and the effects of currency exchange rates, (b) cash flow from operating activities and cash flow from operating activities as a percent of sales in
accordance with U.S. GAAP to cash flow from operating activities and cash flow from operating activities as a percent of sales without the effect of a
discretionary pension plan contribution, (c) segment operating income and operating margins reported in accordance with U.S. GAAP to segment
operating income and operating margins without the effect of business realignment charges and voluntary retirement expenses and, (d) net income and
earnings per diluted share reported in accordance with U.S. GAAP to net income and earnings per diluted share without the effect of business realignment
charges and voluntary retirement expenses. The effects of acquisitions, currency exchange rates, discretionary pension plan contributions, business
realignment charges and voluntary retirement expenses are removed to allow investors and the company to meaningfully evaluate changes in sales, and
cash flow from operating activities as a percent of sales, segment operating income, operating margins, net income and earnings per diluted share on a
comparable basis from period to period. Full year adjusted guidance removes business realignment charges.
Please visit www.PHstock.com for more information
2
Agenda
3
• Chairman and CEO Comments
• Questions and Answers
• Results and Outlook
4
Chairman and CEO Comments
4th Quarter FY2016
Fourth Quarter Sales of $2.96B, Sequential Improvement in Sales
As Reported Earnings per Share of $1.77 ($1.90 Adjusted)
Impressive Margin & Decremental MROS Performance
Full Year FY2016
YTD Operating Cash Flow 10.3% of Sales (12.1% Adjusted)
Executed Significant Restructuring and Simplification: $109M
As Reported Decremental Margins of 19.5%
Repurchased $558M of Parker Shares in FY2016
5
Chairman and CEO Comments
Full Year FY2017 Guidance
Initiating FY17 Adjusted EPS Guidance of $6.40 - $7.10 ($6.75 midpoint)
Sales Essentially Flat for the Year, Increased Earnings
Realignment Expenses of $48 million or $0.25 per share
Win Strategy Execution
Meaningful Progress Across our Strategic Initiatives
Confident in Achieving our FY20 Financial Objectives
Diluted Earnings Per Share
4th Quarter FY2016
6
*Adjusted for Business Realignment Charges/Voluntary Retirement Expense
**Adjusted for Business Realignment Charges
Influences on Adjusted Earnings Per Share
4th Quarter FY2016 vs. 4th Quarter FY2015
7
*FY15 Q4 EPS Adjusted for Business Realignment Charges/Voluntary Retirement Expense
**FY16 Q4 EPS Adjusted for Business Realignment Charges
Influences on Adjusted Earnings Per Share
FY2016 vs. FY2015
8
*FY15 EPS Adjusted for Business Realignment Charges/Voluntary Retirement Expense
**FY16 EPS Adjusted for Business Realignment Charges
Sales & Segment Operating Margin
Total Parker
9
$ in millions 4th Quarter
FY2016
%
Change FY2015
Sales
As Reported 2,957$ (6.0)% 3,144$
Acquisitions 11 0.3 %
Currency (31) (1.0)%
Organic Sales 2,977$ (5.3)%
FY2016
% of
Sales FY2015
% of
Sales
Segment Operating Margin
As Reported 437$ 14.8 % 440$ 14.0 %
Business Realignment 25 27
Adjusted 462$ 15.6 % 468$ 14.9 %
Full Year
FY2016
%
Change FY2015
11,361$ (10.6)% 12,711$
42 0.3 %
(404) (3.2)%
11,723$ (7.7)%
FY2016
% of
Sales FY2015 % of Sales
1,576$ 13.9 % 1,838$ 14.5 %
107 50
1,682$ 14.8 % 1,888$ 14.9 %
Sales & Segment Operating Margin
Diversified Industrial North America
10
$ in millions 4th Quarter
FY2016
%
Change FY2015
Sales
As Reported 1,260$ (10.8)% 1,413$
Acquisitions 2 0.1 %
Currency (8) (0.6)%
Organic Sales 1,266$ (10.3)%
FY2016
% of
Sales FY2015
% of
Sales
Segment Operating Margin
As Reported 221$ 17.5 % 229$ 16.2 %
Business Realignment 5 15
Adjusted 226$ 18.0 % 244$ 17.3 %
Full Year
FY2016
%
Change FY2015
4,955$ (13.3)% 5,716$
9 0.1 %
(60) (1.0)%
5,006$ (12.4)%
FY2016
% of
Sales FY2015 % of Sales
790$ 15.9 % 956$ 16.7 %
42 16
832$ 16.8 % 972$ 17.0 %
Sales & Segment Operating Margin
Diversified Industrial International
11
Full Year
FY2016
%
Change FY2015
4,146$ (12.6)% 4,741$
33 0.7 %
(339) (7.1)%
4,452$ (6.2)%
FY2016
% of
Sales FY2015 % of Sales
448$ 10.8 % 584$ 12.3 %
61 27
509$ 12.3 % 611$ 12.9 %
$ in millions 4th Quarter
FY2016
%
Change FY2015
Sales
As Reported 1,095$ (4.2)% 1,142$
Acquisitions 9 0.8 %
Currency (23) (2.0)%
Organic Sales 1,109$ (3.0)%
FY2016
% of
Sales FY2015
% of
Sales
Segment Operating Margin
As Reported 119$ 10.8 % 118$ 10.3 %
Business Realignment 18 6
Adjusted 137$ 12.6 % 124$ 10.9 %
Sales & Segment Operating Margin
Aerospace Systems
12
$ in millions 4th Quarter
FY2016
%
Change FY2015
Sales
As Reported 602$ 2.2 % 589$
Acquisitions - - %
Currency - - %
Organic Sales 602$ 2.2 %
FY2016
% of
Sales FY2015
% of
Sales
Segment Operating Margin
As Reported 98$ 16.2 % 93$ 15.9 %
Business Realignment 1 6
Adjusted 99$ 16.4 % 99$ 16.9 %
Full Year
FY2016
%
Change FY2015
2,260$ 0.3 % 2,254$
- - %
(5) (0.2)%
2,265$ 0.5 %
FY2016
% of
Sales FY2015 % of Sales
337$ 14.9 % 299$ 13.3 %
4 6
341$ 15.1 % 305$ 13.5 %
Order Rates
13
Excludes Acquisitions, Divestitures & Currency
3-month year-over-year comparisons of total dollars, except Aerospace Systems
Aerospace Systems is calculated using a 12-month rolling average
Jun 2016 Mar 2016 Jun 2015 Mar 2015
Total Parker 1 %- 6 %- 9 %- 4 %-
Diversified Industrial North America 10 %- 9 %- 9 %- 6 %-
Diversified Industrial International 3 %+ 6 %- 5 %- 3 %-
Aerospace Systems 14 %+ 1 %+ 14 %- 3 %-
Adjusted Cash Flow from Operating Activities
14
*Adjusted for discretionary pension plan contribution
4th Quarter Full Year
FY 2016 % of Sales FY 2015 % of Sales FY 2016 % of Sales FY 2015 % of Sales
As Reported Cash Flow From Operating Activities 488 16.5% 5 1 16.2% 1,170 10.3% 1302 10.2%
Discreti nary Pension Plan Contribution 20
Adjusted Cash Flow From Operating Activities 488 16.5 511 16.2 1,370 12.1 1302 10.2
FY2017 Guidance
Adjusted EPS Initiated at $6.75 Midpoint
15
FY17 Adjusted Segment Operating Margins exclude Business Realignment Charges
FY17 Adjusted Earnings Per Share excludes Business Realignment Charges
Sales Growth vs. Prior Year
Diversified Industrial North America (4.7%) - (0.7%)
Diversified Industrial International 1.2% - 5.2%
Aerospace Systems 0.8% - 2.8%
Total Parker (1.5%) - 2.1%
Adjusted Segment Operating Margins
Diversified Industrial North America 17.3% - 17.7%
Diversified Industrial International 13.0% - 13.4%
Aerospace Systems 15.1% - 15.5%
Total Parker 15.2% - 15.6%
Below the Line Items
Corporate General & Administrative Expense, Interest and Other $469 M
Tax Rate
Full Year 29%
Shares
Diluted Shares Outstanding (Full Year Average) 135.5M
Earnings Per Share
As Reported Range $6.15 - $6.85
Adjusted Range $6.40 - $7.10
FY2017 Guidance
FY17 Guidance vs FY16 Actual
16
*Adjusted for Business Realignment Charges
17
Appendix
Consolidated Statement of Income
Reconciliation of Net Income & EPS
Business Segment Information
Reconciliation of Segment Operating Margin
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Reconciliation of Forecasted EPS
Supplemental Sales Information – Global Technology Platforms
Consolidated Statement of Income
19
Three Months Ended June 30, Tw elve Months Ended June 30,
(Dollars in thousands except per share amounts) 2016 2015 2016 2015
Net sales 2,957,150$ 3,144,508$ 11,360,753$ 12,711,744$
Cost of sales 2,272,455 2,420,780 8,823,384 9,655,245
Gross profit 684,695 723,728 2,537,369 3,056,499
Selling, general and administrative expenses 338,572 391,796 1,359,360 1,544,746
Interest expense 32,715 34,797 136,517 118,406
Other (income), net (22,798) (6,838) (73,236) (38,893)
Income before income taxes 336,206 303,973 1,114,728 1,432,240
Income taxes 94,295 124,388 307,512 419,687
Net income 241,911 179,585 807,216 1,012,553
Less: Noncontrolling interests 115 131 376 413
Net income attributable to common shareholders 241,796$ 179,454$ 806,840$ 1,012,140$
Earnings per share attributable to common shareholders:
Basic earnings per share 1.80$ 1.29$ 5.96$ 7.08$
Diluted earnings per share 1.77$ 1.27$ 5.89$ 6.97$
Average shares outstanding during period - Basic 134,385,814 138,674,443 135,353,321 142,925,327
Average shares outstanding during period - Diluted 136,255,977 141,000,940 136,911,690 145,112,150
Cash dividends per common share .63$ .63$ 2.52$ 2.37$
Reconciliation of Net Income & EPS
20
RECONCILIATION OF NET INCOME AND EARNINGS PER DILUTED SHARE TO ADJUSTED NET INCOME AND EARNINGS PER DILUTED SHARE
Net income 241,911$ 179,585$ 807,216$ 1,012,553$
Adjustments:
Voluntary retirement expense - 15,034 - 15,034
Business realignment charges 17,828 7,014 78,069 25,180
Adjusted net income 259,739$ 201,633$ 885,285$ 1,052,767$
Earnings per diluted share 1.77$ 1.27$ 5.89$ 6.97$
Adjustments:
Voluntary retirement expense - 0.11 - 0.11
Business realignment charges 0.13 0.05 0.57 0.17
Adjusted earnings per diluted share 1.90$ 1.43$ 6.46$ 7.25$
Three Months Ended June 30, Tw elve Months Ended June 30,
(Dollars in thousands except per share amounts) 2016 2015 2016 2015
Business Segment Information
21
Three Months Ended June 30, Tw elve Months Ended June 30,
(Dollars in thousands) 2016 2015 2016 2015
Net sales
Diversif ied Industrial:
North America 1,260,203$ 1,413,098$ 4,955,211$ 5,715,742$
International 1,094,585 1,142,231 4,145,272 4,741,376
Aerospace Systems 602,362 589,179 2,260,270 2,254,626
Total 2,957,150$ 3,144,508$ 11,360,753$ 12,711,744$
Segment operating income
Diversif ied Industrial:
North America 221,158$ 228,861$ 789,667$ 955,501$
International 118,634 118,134 448,457 583,937
Aerospace Systems 97,526 93,494 337,531 298,994
Total segment operating income 437,318 440,489 1,575,655 1,838,432
Corporate general and administrative expenses 46,620 63,077 173,203 215,396
Income before interest and other 390,698 377,412 1,402,452 1,623,036
Interest expense 32,715 34,797 136,517 118,406
Other expense 21,777 38,642 151,207 72,390
Income before income taxes 336,206$ 303,973$ 1,114,728$ 1,432,240$
22
Reconciliation of
Segment Operating Margin
Three Months
Ended June 30,
2016
Three Months
Ended June 30,
2015
Operating margin Operating margin
Total segment operating income 437,318$ 14.8% 440,489$ 14.0%
Adjustments:
Voluntary retirement expense - 18,057
Business realignment charges 25,024 9,150
Adjusted total segment operating income 462,342$ 15.6% 467,696$ 14.9%
Twelve
Months Ended
June 30, 2016
Tw elve Months
Ended June 30,
2015
Operating margin Operating margin
Total segment operating income 1,575,655$ 13.9% 1,838,432$ 14.5%
Adjustments:
Voluntary retirement expense - 18,057
Business realignment charges 106,642 31,849
Adjusted total segment operating income 1,682,297$ 14.8% 1,888,338$ 14.9%
Consolidated Balance Sheet
23
June 30, June 30,
(Dollars in thousands) 2016 2015
Assets
Current assets:
Cash and cash equivalents 1,221,653$ 1,180,584$
Marketable securities and other investments 882,342 733,490
Trade accounts receivable, net 1,593,920 1,620,194
Non-trade and notes receivable 232,183 364,534
Inventories 1,173,329 1,300,459
Prepaid expenses 104,360 241,684
Total current assets 5,207,787 5,440,945
Plant and equipment, net 1,568,100 1,664,022
Goodw ill 2,903,037 2,942,679
Intangible assets, net 922,571 1,013,439
Other assets 1,455,243 1,218,197
Total assets 12,056,738$ 12,279,282$
Liabilities and equity
Current liabilities:
Notes payable 361,840$ 223,142$
Accounts payable 1,034,589 1,092,138
Accrued liabilities 841,915 894,555
Accrued domestic and foreign taxes 127,597 139,285
Total current liabilities 2,365,941 2,349,120
Long-term debt 2,675,000 2,723,960
Pensions and other postretirement benefits 2,076,143 1,699,197
Deferred income taxes 54,395 63,222
Other liabilities 306,581 336,214
Shareholders' equity 4,575,255 5,104,287
Noncontrolling interests 3,423 3,282
Total liabilities and equity 12,056,738$ 12,279,282$
Consolidated Statement of Cash Flows
24
Tw elve Months Ended June 30,
(Dollars in thousands) 2016 2015
Cash flows from operating activities:
Net income 807,216$ 1,012,553$
Depreciation and amortization 306,843 317,491
Stock incentive plan compensation 71,293 96,093
Gain on sale of businesses (10,666) (6,420)
Loss on disposal of assets 414 14,953
(Gain) loss on sale of marketable securities (723) 3,817
Net change in receivables, inventories, and trade payables 85,414 (13,948)
Net change in other assets and liabilities (47,012) (63,679)
Other, net (42,936) (58,919)
Net cash provided by operating activities 1,169,843 1,301,941
Cash flows from investing activities:
Acquisitions (net of cash of $3,814 in 2016 and $8,332 in 2015) (67,552) (18,618)
Capital expenditures (149,407) (215,527)
Proceeds from sale of plant and equipment 18,821 19,655
Proceeds from sale of businesses 24,325 37,265
Purchases of marketable securities and other investments (1,351,464) (1,747,333)
Maturities and sales of marketable securities and other investments 1,300,633 1,391,396
Other, net (39,995) (46,001)
Net cash (used in) investing activities (264,639) (579,163)
Cash flows from financing activities:
Net payments for common stock activity (546,304) (1,371,662)
Net proceeds from debt 85,843 667,307
Dividends (341,962) (340,389)
Net cash (used in) financing activities (802,423) (1,044,744)
Effect of exchange rate changes on cash (61,712) (111,005)
Net increase (decrease) in cash and cash equivalents 41,069 (432,971)
Cash and cash equivalents at beginning of period 1,180,584 1,613,555
Cash and cash equivalents at end of period 1,221,653$ 1,180,584$
Reconciliation of Forecasted EPS
25
Fiscal Year
2017
Forecasted earnings per diluted share $6.15 to $6.85
Adjustments:
Business realignment charges .25
Adjusted forecasted earnings per diluted share $6.40 to $7.10
Supplemental Sales Information
Global Technology Platforms
26
(Unaudit d)
(Dollars in thousands)
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
Net sales
Diversif ied Industrial:
Motion Systems 802,495$ 754,923$ 789,445$ 837,616$ 802,495$ $ 1,557,418 $ 2,346,863 $ 3,184,479
Flow and Process Control 881,911 805,611 855,702 883,233 881,911 1,687,522 2,543,224 3,426,457
Filtration and Engineered Materials 640,371 592,704 622,533 633,939 640,371 1,233,075 1,855,608 2,489,547
Aerospace Systems 544,571 552,352 560,985 602,362 544,571 1,096,923 1,657,908 2,260,270
Total 2,869,348$ 2,705,590$ 2,828,665$ 2,957,150$ 2,869,348$ 5,574,938$ 8,403,603$ 11,360,753$
Three Months Ending Fiscal Year-to-Date