Group 1 - Parker Hannifin Corporation will release its fiscal 2025 fourth quarter and full year earnings on August 7, 2025, before the market opens [1] - A conference call will follow the earnings release at 11:00 a.m. Eastern time, where the company will discuss results and answer questions from investors and analysts [1] - The conference call will be webcast on Parker's investor website and archived for later replay [1] Group 2 - Parker Hannifin is recognized as a Fortune 250 global leader in motion and control technologies [2] - The company has a strong track record of increasing its annual dividend per share for 69 consecutive fiscal years, ranking among the top five longest-running dividend-increase records in the S&P 500 index [2]

Core Insights - Parker-Hannifin is recognized as a global leader in motion and control technology, demonstrating consistent organic sales and EPS growth over the past five years [1] - The company has achieved an expansion of adjusted operating margin by 630 basis points [1] - Parker-Hannifin has successfully doubled its free cash flow during the same period [1]

Core Viewpoint - Parker Hannifin Corporation has agreed to acquire Curtis Instruments, Inc. for approximately $1 billion in cash, enhancing its capabilities in electric vehicle technologies and positioning itself for future growth in electrification [1][3]. Company Overview - Parker Hannifin is a global leader in motion and control technologies, recognized for its long-standing commitment to innovation and shareholder value, having increased its annual dividend for 69 consecutive years [6]. Acquisition Details - The acquisition of Curtis Instruments is expected to close by the end of calendar year 2025, pending regulatory approvals [1]. - Curtis is projected to generate sales of approximately $320 million in calendar year 2025, providing a significant addition to Parker's revenue stream [2]. Strategic Alignment - The acquisition aligns with the long-term trend towards electrification, enhancing Parker's existing industrial electrification platform and enabling better service to customers adopting electric and hybrid solutions [3][8]. - The deal is expected to create operational synergies through Parker's proven business system, The Win Strategy™, which aims to deliver strong shareholder value [3]. Market Positioning - Curtis Instruments designs and manufactures products that complement Parker's strengths in electric vehicle motors and hydraulic technologies, thereby enhancing Parker's electrification capabilities [2][8]. - The acquisition is viewed positively by both Rehlko and its financial sponsor, Platinum Equity, who believe that Curtis will thrive under Parker's scale and investment focus [4].

Group 1: Company Performance - Parker-Hannifin Corporation (PH) is experiencing strong momentum in its Aerospace Systems segment, with organic revenues increasing approximately 12% year over year in Q3 of fiscal 2025 [1][6] - The company expects the Aerospace Systems segment's organic sales to continue growing by about 12% in fiscal 2025, driven by demand in the air transport and defense markets [1][6] - Parker-Hannifin has doubled its portfolio in aerospace, filtration, and engineered materials over the past eight years and is shifting towards longer-cycle products to achieve stable revenue streams [3] Group 2: Strategic Initiatives - The acquisition of Meggitt plc in September 2022 has expanded Parker-Hannifin's presence in the UK, enhancing its product offerings for aircraft and aero-engine components [2] - The company aims for 4-6% revenue growth by fiscal 2029, supported by its Win strategy, macro-CapEx reinvestment, and acquisitions [3][6] - Parker-Hannifin reported an adjusted segment operating margin of 26.3% in Q3, reflecting a 160 basis points increase from the previous year [3] Group 3: Shareholder Returns - In April 2025, Parker-Hannifin increased its dividend by 10% to $1.80 per share, with total dividends of $630.2 million in the first nine months of fiscal 2025, up 10.3% [4] - The company also repurchased shares worth $750 million during the same period [4] Group 4: Market Challenges - The Diversified Industrial segment is facing challenges due to weakness in the off-highway end market, particularly in construction and agriculture, as well as softness in the transportation end market [8] - Foreign currency translation negatively impacted sales by approximately 1% in Q3, with expectations of a 0.5% adverse effect on the top line in fiscal 2025 [9]

Core Insights - Dividend stocks have significantly contributed to long-term market returns through the power of compounding, especially when dividends are reinvested over time [1] - In the current economic climate of inflation and uncertainty, dividend growth stocks provide resilience and stability, often exhibiting stronger balance sheets and pricing power compared to non-dividend payers [2] Company Analysis: Procter & Gamble (PG) - Procter & Gamble has a 69-year history of raising dividends, supported by a diverse portfolio of household brands, and currently offers a dividend yield of approximately 2.55%, nearly double the S&P 500 average of 1.27% [4][5] - The company's dividend payout ratio is around 64%, indicating a balanced approach to shareholder returns and reinvestment in growth [5] - P&G's forward price-to-earnings (P/E) ratio is approximately 23.6, reflecting its strong brand equity despite recent challenges in sales growth and market pressures [6] - Anticipated costs due to tariffs in fiscal 2026 range from $1 billion to $1.5 billion, representing about 3% of its cost of goods sold, prompting the company to streamline its operations for efficiency [7] - P&G's strategic investments in innovation and disciplined capital allocation make it a reliable choice for income-focused investors [8] Company Analysis: Parker-Hannifin (PH) - Parker-Hannifin has maintained a 69-year streak of annual dividend increases, with a current yield of 1.06% and a conservative payout ratio of 25.3%, allowing for continued dividend growth [9] - The company has achieved a remarkable 10.9% annualized dividend growth rate over the past decade, significantly outpacing many blue-chip dividend payers [9] - Parker-Hannifin's aerospace segment has shown strong performance with 11.7% organic growth and record operating margins of 28.7% in fiscal Q3 2025, despite challenges in other industrial segments [10] - The company is well-positioned to benefit from growth in commercial aerospace, focusing on high-margin fluid power and motion control systems, aligning with trends in automation and electrification [11] - For income-focused investors, Parker-Hannifin offers a combination of defensive characteristics, growth exposure, and proven capital allocation expertise, making it a strong candidate for long-term wealth building [12]

Core Points - Parker Hannifin Corporation announced the retirement of Robert W. Malone, Vice President and President of the Filtration Group, effective August 31, 2025, after 12 years of service [1][3] - Matthew A. Jacobson has been elected to succeed Mr. Malone as Vice President and President of the Filtration Group, effective July 1, 2025 [2][4] Leadership Transition - Mr. Malone joined Parker in 2013 and became Vice President and President of the Filtration Group in 2014, leading significant growth and the integration of CLARCOR, which doubled the size of the Filtration Group [3] - Mr. Jacobson has over 20 years of experience at Parker, having held various operational leadership roles since joining in 2005, and is expected to build on the foundation established by Mr. Malone [4][5] Company Overview - Parker Hannifin is a Fortune 250 global leader in motion and control technologies, with a history of enabling engineering breakthroughs for over a century [6]

PART I [ITEM 1. FINANCIAL STATEMENTS](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements for the three and nine months ended March 31, 2025, and 2024, including the Income Statement, Comprehensive Income, Balance Sheet, and Cash Flows, along with detailed notes on revenue, divestitures, debt, and segment performance, reporting net income of **$2.61 billion** on net sales of **$14.61 billion** for the nine months ended March 31, 2025 [Consolidated Statement of Income](index=2&type=section&id=Consolidated%20Statement%20of%20Income) For Q3 2025, net sales slightly decreased to **$4.96 billion** from **$5.07 billion** year-over-year, while net income attributable to common shareholders significantly increased to **$960.9 million** from **$726.6 million**, primarily due to a substantial reduction in income tax expense, with diluted EPS rising to **$7.37** from **$5.56** Consolidated Statement of Income Highlights (in thousands, except per share) | Metric | Q3 2025 | Q3 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $4,960,349 | $5,074,356 | $14,606,926 | $14,742,791 | | Income before income taxes | $994,814 | $920,043 | $3,035,857 | $2,608,643 | | Income taxes | $33,628 | $193,309 | $427,494 | $548,780 | | Net income attributable to common shareholders | $960,866 | $726,574 | $2,607,828 | $2,059,252 | | Diluted EPS | $7.37 | $5.56 | $19.97 | $15.82 | [Consolidated Balance Sheet](index=4&type=section&id=Consolidated%20Balance%20Sheet) As of March 31, 2025, total assets were **$28.92 billion**, a slight decrease from **$29.30 billion** at June 30, 2024, primarily driven by a reduction in total liabilities from **$17.22 billion** to **$15.52 billion**, largely due to lower notes payable and long-term debt, while total shareholders' equity increased to **$13.39 billion** from **$12.07 billion** Balance Sheet Summary (in thousands) | Metric | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total current assets | $6,777,140 | $6,798,624 | | Goodwill | $10,461,946 | $10,507,433 | | Total assets | $28,917,808 | $29,297,842 | | Total current liabilities | $5,614,466 | $7,313,309 | | Long-term debt | $7,421,370 | $7,157,034 | | Total liabilities | $15,517,983 | $17,216,949 | | Total shareholders' equity | $13,390,974 | $12,071,972 | [Consolidated Statement of Cash Flows](index=5&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) For the nine months ended March 31, 2025, net cash provided by operating activities increased to **$2.31 billion** from **$2.15 billion** in the prior year, driven by higher net income, while investing activities provided **$344.7 million** in cash, a significant shift from a **$194.3 million** use of cash in the prior year, mainly due to **$622.7 million** in proceeds from the sale of businesses, and financing activities used **$2.68 billion**, primarily for debt repayment and share repurchases Cash Flow Summary (Nine Months Ended March 31, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,308,761 | $2,147,077 | | Net cash provided by (used in) investing activities | $344,670 | $(194,301) | | Net cash used in financing activities | $(2,681,045) | $(2,005,528) | | Net decrease in cash and cash equivalents | $(13,292) | $(69,698) | - Proceeds from the sale of businesses were a major source of cash from investing activities, totaling **$622.7 million** in the first nine months of fiscal 2025, compared to **$75.6 million** in the prior year[12](index=12&type=chunk) - The company used **$859.9 million** for common share repurchases and **$630.2 million** for dividend payments in the first nine months of fiscal 2025[12](index=12&type=chunk) [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, revenue breakdown, divestitures, debt management, and segment performance, highlighting the divestiture of the CFC business for a **$238 million** pre-tax gain, the issuance of **€700 million** in new senior notes, and a significant discrete tax benefit of **$180 million** from a valuation allowance release, with backlog standing at **$11.0 billion** as of March 31, 2025 Revenue by Segment (Nine Months Ended March 31, in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Diversified Industrial | $10,097,723 | $10,798,644 | | Aerospace Systems | $4,509,203 | $3,944,147 | - In November 2024, the company divested its composites and fuel containment (CFC) business for net proceeds of **$555 million**, resulting in a pre-tax gain of **$238 million**[26](index=26&type=chunk) - Total backlog was **$11.0 billion** at March 31, 2025, with approximately **72%** expected to be recognized as revenue within the next 12 months[24](index=24&type=chunk) - During Q3 2025, the company recorded a **$180 million** discrete tax benefit due to a valuation allowance release following the simplification of its foreign legal entity structure[59](index=59&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=19&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses a slight decrease in consolidated net sales for the first nine months of fiscal 2025, driven by lower sales in the Diversified Industrial segment, partially offset by strong growth in the Aerospace Systems segment, while net income and margins improved due to price increases, favorable product mix, cost containment, and a significantly lower effective tax rate, highlighting strong cash flow generation, strategic divestitures, and continued capital return to shareholders through dividends and buybacks [Consolidated Results of Operations](index=21&type=section&id=Consolidated%20Results%20of%20Operations) For Q3 2025, net sales decreased **2.2%** to **$4.96 billion**, impacted by lower Diversified Industrial sales, currency headwinds (**$57 million**), and divestitures (**$105 million**), while gross profit margin improved to **36.9%** from **35.4%** year-over-year due to pricing, mix, and cost controls, and the effective tax rate dropped to **3.4%** from **21.0%** due to a **$180 million** discrete tax benefit, boosting net income to **19.4%** of sales - Net sales for the first nine months of FY2025 decreased slightly, impacted by currency exchange rates (**$-105 million**) and divestiture activity (**$-180 million**)[91](index=91&type=chunk) - Gross profit margin increased in Q3 and the first nine months of FY2025, primarily due to price increases, favorable product mix, and cost containment[92](index=92&type=chunk) - The Q3 effective tax rate was **3.4%**, significantly lower than **21.0%** in the prior year, mainly due to a large discrete tax benefit from the release of a foreign valuation allowance[90](index=90&type=chunk)[96](index=96&type=chunk) - A fire at the Saegertown, PA facility in February 2025 is not expected to have a material impact on financial results, with an **$8 million** deductible recorded in Q3[87](index=87&type=chunk)[88](index=88&type=chunk) [Diversified Industrial Segment](index=23&type=section&id=Diversified%20Industrial%20Segment) Diversified Industrial segment sales fell **7.6%** in Q3 2025 to **$3.39 billion**, with organic sales declining **3.2%** excluding divestitures and currency impacts, as North American businesses saw a **3.5%** organic decline due to weaker demand in industrial, off-highway, and transportation markets, and international organic sales fell **2.8%**, yet the segment's operating margin improved to **23.0%** from **21.8%** year-over-year, driven by favorable mix, pricing, and cost controls Diversified Industrial Segment Sales Change (Q3 2025 vs Q3 2024) | Metric | North America | International | Total Segment | | :--- | :--- | :--- | :--- | | As reported | (9.0)% | (5.3)% | (7.6)% | | Divestitures | (4.7)% | - | (2.9)% | | Currency | (0.8)% | (2.5)% | (1.5)% | | **Organic (Non-GAAP)** | **(3.5)%** | **(2.8)%** | **(3.2)%** | - Segment operating margin increased to **23.0%** in Q3 2025 from **21.8%** in Q3 2024, benefiting from favorable product mix, price increases, and cost containment[101](index=101&type=chunk)[108](index=108&type=chunk) - Backlog decreased from **$4.36 billion** in the prior year to **$3.75 billion**, with **95%** of the decrease attributed to the CFC business divestiture[101](index=101&type=chunk)[111](index=111&type=chunk) [Aerospace Systems Segment](index=25&type=section&id=Aerospace%20Systems%20Segment) The Aerospace Systems segment delivered strong performance in Q3 2025, with sales increasing **11.6%** to **$1.57 billion** from **$1.41 billion** year-over-year, driven by higher volumes in both commercial and defense aftermarket, as well as the OEM market, while operating margin expanded significantly to **23.7%** from **20.5%** in the prior-year quarter, attributed to higher sales volume, favorable aftermarket mix, and cost control initiatives, and backlog grew to **$7.29 billion** from **$6.47 billion** a year ago Aerospace Systems Segment Performance (in millions) | Metric | Q3 2025 | Q3 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,572 | $1,409 | $4,509 | $3,944 | | Operating income | $373 | $289 | $1,034 | $779 | | Operating margin | 23.7% | 20.5% | 22.9% | 19.7% | - Sales growth was primarily driven by higher volume in the commercial and defense aftermarket, with contributions from the OEM market as well[115](index=115&type=chunk) - Backlog increased to **$7.29 billion** as of March 31, 2025, up from **$6.47 billion** in the prior year and **$6.7 billion** at June 30, 2024, mainly due to strong orders in defense and commercial OEM[114](index=114&type=chunk)[118](index=118&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong liquidity position, with operating cash flow increasing to **$2.31 billion** for the first nine months of fiscal 2025, with key uses of cash including **$750 million** for share repurchases and significant debt repayments, including the remaining **$490 million** of a term loan, and the company issued **€700 million** in new notes to refinance maturing debt, remaining in compliance with all debt covenants as of March 31, 2025, with a debt-to-debt-shareholders' equity ratio of **0.41 to 1.0**, well below the **0.65 to 1.0** limit - Operating cash flow for the first nine months of FY2025 was **$2.31 billion**, an increase of **$162 million** from the prior year, due to higher earnings and strong working capital management[123](index=123&type=chunk) - The company repurchased **1.2 million** common shares for **$750 million** in the first nine months of FY2025[125](index=125&type=chunk) - Significant debt activity included repaying the remaining **$490 million** Term Loan Facility, repaying **$500 million** of medium-term notes, and issuing **€700 million** of new Senior Notes to refinance maturing debt[125](index=125&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - The company declared a quarterly dividend of **$1.80 per share**, marking the **69th** consecutive fiscal year of increased annual dividends[127](index=127&type=chunk) - The company maintains investment-grade credit ratings of **A (Fitch)**, **A3 (Moody's)**, and **BBB+ (S&P)**[136](index=136&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=30&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks from foreign currency fluctuations and interest rate changes, managing foreign currency risk through derivative instruments like forward contracts and cross-currency swaps, as well as net investment hedges, and mitigating interest rate risk from variable-rate debt, primarily commercial paper, by aiming for a **60/40** fixed-to-variable debt mix - The company uses derivative instruments (forward contracts, cross-currency swaps) and non-derivative instruments (foreign currency debt) to hedge foreign currency transaction and translation risks[144](index=144&type=chunk) - A hypothetical **100 basis point (1%)** increase in near-term interest rates would increase annual interest expense on variable-rate debt by approximately **$18 million**[146](index=146&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=31&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025, with no material changes to the company's internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[147](index=147&type=chunk) - No changes in internal control over financial reporting occurred during the third quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, internal controls[148](index=148&type=chunk) PART II - OTHER INFORMATION [ITEM 1. Legal Proceedings.](index=32&type=section&id=ITEM%201.%20Legal%20Proceedings.) The company discloses its involvement in various environmental matters from time to time and will report any such matters that are reasonably expected to result in monetary sanctions of **$1.0 million** or more - The company reports environmental legal matters when monetary sanctions are expected to exceed **$1.0 million**[150](index=150&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=32&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During the third quarter of fiscal 2025, the company repurchased a total of **1,044,147** of its common shares under its publicly announced share repurchase program, with approximately **6.1 million** shares remaining authorized for future repurchase as of March 31, 2025 Issuer Purchases of Equity Securities (Q3 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2025 | 25,700 | $654.80 | | February 2025 | 22,600 | $683.98 | | March 2025 | 995,847 | $620.29 | | **Total** | **1,044,147** | **N/A** | - As of March 31, 2025, **6,104,602** shares may yet be purchased under the existing share repurchase program, which has no expiration date[151](index=151&type=chunk) [ITEM 5. Other Information](index=32&type=section&id=ITEM%205.%20Other%20Information) The company reports that none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2025 - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading plan during the quarter ended March 31, 2025[152](index=152&type=chunk) [ITEM 6. Exhibits.](index=33&type=section&id=ITEM%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and the Inline XBRL data files

Core Insights - Parker-Hannifin Corporation reported adjusted earnings of $6.94 per share for Q3 fiscal 2025, exceeding the Zacks Consensus Estimate of $6.73, with a year-over-year increase of 7% [1] - Total sales were $4.96 billion, falling short of the consensus estimate of $5 billion, and representing a 2% decrease year-over-year, while organic sales grew by 1% [1] - Orders increased by 9% year-over-year, indicating a positive trend in demand [1] Segmental Performance - The Diversified Industrial segment generated sales of $3.25 billion, accounting for 68.3% of total sales, but saw a year-over-year decline of 7.6% [2] - Sales from Diversified Industrial North America were $2.03 billion, down 9% year-over-year, while Diversified International sales were $1.36 billion, down 5.3% year-over-year [2] - Orders for Diversified Industrial North America increased by 3% year-over-year, and orders for Diversified Industrial International rose by 11% [3] Aerospace Systems Performance - The Aerospace Systems segment achieved sales of $1.57 billion, representing 31.7% of total sales, with an 11.6% year-over-year increase driven by aftermarket sales growth in both commercial and defense markets [4] - Orders for the Aerospace Systems unit increased by 14% year-over-year [4] Financial Metrics - Cost of sales was $3.13 billion, down 4.6% year-over-year, and selling, general, and administrative expenses decreased by 3.9% to $784.4 million [5] - Adjusted total segment operating income rose by 5.7% year-over-year to $1.15 billion, with an adjusted total segment operating margin of 23.2%, up 170 basis points year-over-year [5] Balance Sheet and Cash Flow - As of the end of Q3 fiscal 2025, cash and cash equivalents were $408.7 million, down from $422 million at the end of fiscal 2024, while long-term debt increased to $7.42 billion from $7.16 billion [6] - In the first nine months of fiscal 2025, net cash generated from operating activities was $2.31 billion, compared to $2.15 billion in the previous year [6] Capital Expenditures and Dividends - Capital spending for the first nine months totaled $304.2 million, up from $283.3 million in the prior year [7] - Cash dividends paid out amounted to $630.2 million, reflecting a year-over-year increase of 10.3% [7] Fiscal 2025 Guidance - The company updated its fiscal 2025 guidance, now expecting total sales to increase approximately 1% year-over-year, compared to a previous forecast of a 2% decrease to 1% increase [8] - Organic sales are projected to increase approximately 1%, down from an earlier expectation of 2% [8] - Adjusted operating margin is estimated to be around 25.9% [8] Earnings Expectations - Parker-Hannifin anticipates adjusted earnings to be in the range of $26.60-$26.80 per share, slightly revised from the previous expectation of $26.40-$27.00 [9][10]

Financial Data and Key Metrics Changes - Record adjusted segment operating margin of 26.3%, surpassing 26% for the first time [8][16] - Record adjusted EBITDA margin of 27% [9][16] - Year-to-date cash flow from operations reached $2.3 billion, an increase of 8% year-over-year [27] - Adjusted earnings per share (EPS) increased by 7% to $6.94, despite a 2% decline in sales [17][18] Business Line Data and Key Metrics Changes - Aerospace segment achieved record sales of $1.6 billion, up 12% year-over-year, driven by aftermarket strength [25][26] - Industrial North American sales were $2 billion, with organic growth down 3% [22] - International businesses saw order rates improve to 11%, with Asia Pacific up 2% and Latin America robust at 8% [24][25] Market Data and Key Metrics Changes - North American order rates remained positive at 3%, marking the second consecutive quarter of positive order entry [23] - EMEA region faced challenges with a 7% decline, while Latin America showed strong growth [24] - Aerospace orders increased by 14%, contributing to a backlog of $7.3 billion [26][46] Company Strategy and Development Direction - The company emphasizes a decentralized structure and the use of the Win Strategy to drive performance and margin expansion [10][12] - Focus on acquisitions to enhance interconnected technologies and maintain a competitive edge in the motion and control industry [11][75] - Commitment to mitigating tariff impacts through pricing, supply chain actions, and cost reduction strategies [14][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving positive industrial growth in FY 2026, supported by long-cycle orders [44][106] - The company anticipates continued strength in aerospace and defense markets, with a focus on aftermarket growth [29][55] - Management acknowledged ongoing macroeconomic uncertainties but remains optimistic about future performance [106][107] Other Important Information - The board approved a 10% increase in the quarterly dividend, extending the record of increasing annual dividends for 69 years [27] - Share repurchases totaled $650 million for the quarter, with year-to-date repurchases at $750 million [28] Q&A Session Summary Question: Can you elaborate on the longer cycle orders and their conversion to revenues? - Management indicated that longer cycle orders are expected to contribute positively to revenues in FY 2026, with strong order rates in aerospace and HVAC [44][46] Question: What are the risks associated with tariffs and cost management? - Management is confident in fully mitigating tariff impacts through pricing actions, supply chain strategies, and ongoing cost reductions [47][48] Question: How sustainable is the growth in Latin America? - Latin America continues to show robust growth, driven by filtration and motion systems activities [133] Question: What is the outlook for European defense budgets? - Management noted potential positive sentiment regarding future defense spending in Europe, despite current market softness [92][93] Question: How is the company managing operational improvements? - The company is leveraging enhanced demand and capacity tools to improve operational efficiency, even in a challenging volume environment [71][72]

Financial Data and Key Metrics Changes - Record adjusted segment operating margin of 26.3%, surpassing 26% for the first time [6][15] - Record adjusted EBITDA margin of 27%, an increase of 150 basis points [15] - Net income at 9.4% with an 18.2% return on sales, both records [16] - Adjusted earnings per share (EPS) increased by 7% to $6.94 despite a 2% decline in sales [16][25] - Year-to-date cash flow from operations reached $2.3 billion, up 8% year-over-year [25] Business Line Data and Key Metrics Changes - Aerospace segment sales reached a record $1.6 billion, up 12% year-over-year, driven by aftermarket strength [23] - Industrial North American sales were $2 billion, with organic growth down 3% [20] - International businesses saw order rates improve to 11%, with Asia Pacific up 2% and Latin America robust at +8% [22] - Adjusted segment operating margins for international businesses expanded by 160 basis points to 25.1% [23] Market Data and Key Metrics Changes - Orders increased by 9% overall, with North America showing positive order entry results for two consecutive quarters [19][20] - EMEA region faced challenges with a 7% decline, while Latin America remained strong [22] - Tariffs accounted for approximately 3% of cost of goods sold, equating to $375 million annually, fully offset by mitigation actions [13][35] Company Strategy and Development Direction - The company emphasizes a decentralized structure and the use of the Win Strategy to drive performance and margin expansion [8][10] - Focus on maintaining a strong position in the motion and control industry through acquisitions and a resilient portfolio [9] - Commitment to being a strong generator and deployer of cash, with a focus on shareholder value [37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in mitigating tariff impacts and maintaining margin expansion despite macroeconomic uncertainties [13][35] - The outlook for FY 2025 includes a forecast of approximately -1% reported sales growth, with organic growth expected at +1% [31] - Management remains optimistic about positive industrial growth in FY 2026, driven by longer cycle orders [42][100] Other Important Information - The company approved a 10% increase in quarterly dividends, extending a record of increasing annual dividends for 69 years [25] - Share repurchases totaled $650 million in the quarter, with year-to-date repurchases at $750 million [25] Q&A Session Summary Question: Orders and their conversion to revenues - Management indicated that positive industrial growth is expected in FY 2026, with long cycle orders contributing to this outlook [42] Question: Risks related to costs and tariffs - Management is confident in fully mitigating tariff impacts through pricing, supply chain actions, and ongoing cost reductions [45] Question: Strength in aerospace margins - Management noted strong aftermarket performance and confidence in continued margin expansion despite potential headwinds from OEM recovery [50][54] Question: Disconnect between industrial orders and sales - Management explained that the connection between orders and shipments has extended due to the transformation of the portfolio, with longer cycle businesses affecting this dynamic [61] Question: European market outlook - Management acknowledged broad-based softness in European end markets but noted positive sentiment regarding proposed stimulus and future defense spending [88] Question: Corporate G&A cost containment - Management indicated that cost containment measures are expected to remain in place, with no significant rollback anticipated [127]