 Parker Hannifin
Corporation Quarterly Earnings Release
1
st
Quarter FY2011
October 19, 2010
Exhibit 99.2 |
| Parker Hannifin
Corporation Quarterly Earnings Release
1
st
Quarter FY2011
October 19, 2010
Exhibit 99.2 |
| Slide 2
Forward-Looking Statements
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 economic environment, 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 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, and changes in contract cost and revenue estimates
for new development programs; uncertainties surrounding timing, successful completion or
integration of acquisitions; ability to realize anticipated cost savings from business
realignment activities; 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. |
| Slide 3
Non-GAAP Financial Measures
This presentation reconciles sales amounts reported in accordance
with U.S. GAAP to sales amounts adjusted to remove the effects of
acquisitions made within the prior four quarters as well as the effects
of
currency
exchange
rates
on
sales.
This presentation also reconciles
cash flow from operating activities as a percent of sales in accordance
with U.S. GAAP to cash flow from operating activities as a percent of
sales without the effect of a discretionary pension plan contribution.
The
effects
of
acquisitions,
currency exchange rates and the
discretionary pension plan contribution 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 on a comparable
basis from period to period. |
 Slide 4
Discussion Agenda
CEO 1
st
Quarter Highlights
Key Performance Measures & Outlook
Questions & Answers
CEO Closing Comments |
 Slide 5
First Quarter FY11 Highlights
End
Market
Improvement:
Orders
Improved
Year-over-Year
and
Sequentially
Revenues
Rebounding:
Q1
Revenues
Increased
26.5%
Year-over-
Year
All
Time
Record
Operating
Margin:
Sequential
Quarter
Improvement to 15.5%, from 13.9% in Q4 FY10 and 9.0% in Q1 FY10
NA Industrial and International Industrial achieved record ROS levels
Continued
Cost
Control:
Impressive
Incremental
Marginal
Return
on Sales of 40% for Q1 FY11
Gross
Debt
Increase:
$360M
in
Q1
FY11;
offset
by
build
in
cash
of
$348M
Continued
Reduction
in
Net
Leverage:
While
Debt
to
Total
Capital
Ratio
Increased
to
30.4%
(gross);
Net
Leverage
decreased
to
19.9% (net of cash)
Continued
Strong
Cash
Flow:
Q1
FY11
Operating
Cash
Flow/Revenue of 4.3%; (11.4% excluding $200M Discretionary
Pension Contribution) |
 Slide 6
Financial Highlights
Diluted Earnings per Share
1 Quarter
$1.51
$.45
$.00
$.20
$.40
$.60
$.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
Q1 FY11
Q1 FY10
st |
 Slide 7
Influences on 1 Quarter Earnings
Diluted Earnings Per Share Increase of $1.06 Year-
over-Year Primarily Driven By:
Increased Revenues of 26.5%
Significantly Improved Operating Margins to 15.5% from
9.0% Year-over-Year ($1.07 EPS Impact)
Lower Tax Rate due to Favorable FIN 48 Settlements
($.06 EPS Impact)
Offset by:
Increased Corporate G&A Primarily Due To Incentives
($.03 EPS Impact)
Increased Other Expense Primarily Due to Pension and
Inventory Adjustments ($.04 EPS Impact)
st |
  Slide
8 Financial Highlights
Sales –
1
st
Quarter
Dollars in millions
FY2011
%
Change
FY2010
Sales
As reported
2,829
$
26.5 %
2,237
$
Acquisitions
4
0.2 %
Currency
(26)
(1.1)%
Adjusted Sales
2,851
$
27.4 %
1st Quarter |
 Slide 9
Segment Reporting
Industrial North America
Dollars in millions
FY2011
%
Change
FY2010
Sales
As reported
1,064
$
36.0 %
783
$
Acquisitions
-
--
%
Currency
3
0.4 %
Adjusted Sales
1,061
$
35.6 %
Operating Margin
As reported
189
$
76
$
% of Sales
17.8 %
9.7 %
1st Quarter |
 Slide 10
Segment Reporting
Industrial International
Dollars in millions
FY2011
%
Change
FY2010
Sales
As reported
1,093
$
28.5 %
850
$
Acquisitions
-
--
%
Currency
(27)
(3.2)%
Adjusted Sales
1,120
$
31.7 %
Operating Margin
As reported
184
$
62
$
% of Sales
16.8 %
7.3 %
1st Quarter |
 Slide 11
Segment Reporting
Aerospace
Dollars in millions
FY2011
%
Change
FY2010
Sales
As reported
437
$
4.8 %
417
$
Acquisitions
2
0.6 %
Currency
(1)
(0.2)%
Adjusted Sales
436
$
4.4 %
Operating Margin
As reported
44
$
53
$
% of Sales
10.0 %
12.7 %
1st Quarter |
 Slide 12
Segment Reporting
Climate & Industrial Controls
Dollars in millions
FY2011
%
Change
FY2010
Sales
As reported
235
$
25.5 %
187
$
Acquisitions
2
0.9 %
Currency
(1)
(0.3)%
Adjusted Sales
234
$
24.9 %
Operating Margin
As reported
22
$
10
$
% of Sales
9.2 %
5.6 %
1st Quarter |
 Slide 13
Parker Order Rates
Excludes Acquisitions & Currency
3-month year-over-year comparisons of total dollars, except Aerospace
Aerospace is calculated using a 12-month moving average
SEPT '10
JUN '10
SEPT '09
JUN '09
Total Parker
29 %
+
35 %
+
25 %
-
38 %
-
Industrial North America
31 %
+
46 %
+
27 %
-
40 %
-
Industrial International
34 %
+
46 %
+
25 %
-
43 %
-
Aerospace
16 %
+
3 %
-
23 %
-
22 %
-
Climate & Industrial Controls
23 %
+
35 %
+
17 %
-
31 %
-
Three
Month
Rolling
at
Period
End |
 Slide 14
Balance Sheet Summary
Cash
Working capital
-
Accounts receivable
-
Inventory
-
Accounts payable |
 Slide 15
Strong Cash Flow
Cash from Operating Activities
1
st
Quarter
$123
$260
$0
$100
$200
$300
$400
$500
$600
FY11
FY10
FY11 Cash from Operating Activities
As
reported $122,880
Pension plan contribution 200,000
Adjusted
$322,880
FY11 Cash from Operating Activities As A % of
Sales
As
reported
4.3% Pension plan
contribution 7.1%
Adjusted
11.4% |
 Slide 16
Financial Leverage
30.4%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
42.0%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Debt to Debt Equity
30.4%
Debt to Debt Equity
(19.9% net Debt) |
 Slide 17
FY 2011 Earnings Outlook Assumptions
Segment Sales & Operating Margins
FY 2011 Sales change versus FY 2010
Industrial North America
13.4 %
--
16.4 %
Industrial International
13.3 %
--
16.3 %
Aerospace
4.1 %
--
6.7 %
Climate & Industrial Controls
12.3 %
--
15.3 %
FY 2011 Operating margin percentages
Industrial North America
16.4 %
--
17.0 %
Industrial International
15.2 %
--
16.1 %
Aerospace
12.0 %
--
12.8 %
Climate & Industrial Controls
8.8 %
--
9.4 % |
 Slide 18
FY 2011 Earnings Outlook Assumptions
below Operating Margin (+/-
2.0%)
Corporate Admin
$161M
Interest Expense
$ 98M
Other Expense (Inc.)
$152M
Total
$411M
Tax Rate
29% |
 Slide 19
Earnings Outlook –
FY11
Low
High
Diluted earnings per share
$5.20
$5.80 |
 Slide 20
Questions & Answers... |
 Appendix
Income Statement
1
st
Quarter FY2011 |
 Slide 22
Income Statement –
1 Quarter
st
Quarter
Dollars in millions
% of Sales
% of Sales
Net Sales
2,829.3
$
100.0 %
2,237.2
$
100.0 %
Cost of sales
2,137.9
75.6 %
1,801.0
80.5 %
Gross profit
691.4
24.4 %
436.2
19.5 %
S, G & A
333.6
11.8 %
301.8
13.4 %
Interest expense
24.6
.8 %
25.7
1.2 %
Other (income), net
(3.2)
(.1)%
(5.3)
(.2)%
Income before taxes
336.4
11.9 %
114.0
5.1 %
Income taxes
87.3
3.1 %
40.0
1.8 %
Net income
249.1
$
8.8 %
74.0
$
3.3 %
Less: Noncontrolling
interests
1.9
$
.1 %
.5
$
.0 %
Net income attributable to common
shareholders
247.2
$
8.7 %
73.5
$
3.3 %
FY 2011
FY 2010 |